BULLISH AFTER BOTTOM GAP UP
Definition
This is a five-candlestick pattern that begins with three black candlesticks. The market signals a bottom reversal with a color change at the fourth candlestick. The following day opens with a gap higher and makes a strong upward move, confirming the reversal.
Recognition Criteria
1. The pattern begins with a black candlestick.
2. The next two days are also black candlesticks, with each one closing lower than the previous day’s close.
3. On the third day, there is a gap down, and it opens below the close of the second day.
4. The fourth day features a white candlestick.
5. The fifth day is a strong white candlestick that opens with a gap above the previous day’s close.
Pattern Requirements and Flexibility
The first three days of the Bullish After Bottom Gap Up pattern consist of strong black candlesticks with consecutive lower opens and lower closes. The third black candlestick should gap down. The fourth day features a white candlestick that opens higher and covers the gap. The fifth day is a strong white candlestick that creates a body gap with the fourth day. There are no short candlesticks in this pattern.
Trader’s Behavior
The first two black days, followed by a gapping down third black day, create an extended downtrend. The fourth day features a strong white candlestick, indicating potential weakness in the decline. On the fifth day, a higher gap at the open and a close near the highs result in a strong white candlestick. This suggests that the market may have overextended to the downside, initiating a reversal of the prior trend.
Buy/Stop-Loss Levels
The confirmation level is set at the last closing price. For confirmation, prices need to surpass this level.
The stop-loss level is set at the lower of the last two lows. After a BUY signal, the stop-loss is triggered if prices decline instead of rising and either close below the stop-loss level or record two consecutive daily lows below it, without any bearish pattern being detected.