BEARISH AFTER TOP GAP DOWN
Definition
This is a five candlestick pattern that starts with three white candlesticks. The market signals a top reversal with the change in the color at the fourth candlestick. The next day gaps lower and makes a strong downward move, confirming the reversal.
Recognition Criteria
1. The pattern begins with a white candlestick.
2. The next two days are also white days, and each one closes higher than the previous day’s close.
3. The third day gaps up and opens above the close of the second day.
4. The fourth day is black.
4. The fifth day is a strong black with an open forming a gap below the previous day’s close.
Pattern Requirements and Flexibility
The first three days of the Bullish After Top Gap Down are strong white candlesticks with consecutive higher opens and higher closes. The third white should gap up. The fourth day is a black candlestick that opens lower and covers the gap. The fifth day is a strong black candlestick that makes a body gap with the fourth day. There are no short candlesticks in this pattern
Trader’s Behavior
The first two white days and the gapping up third white day create a market with an extended bullishness. The fourth day is a strong black day that shows that there might be some weakness finally in the uptrend. The fifth day gaps down and closes near its lows creating a strong black candlestick. It now appears that the market overextended itself to the upside and a reversal of the prior trend has begun.
Sell/Stop Loss Levels
The confirmation level is defined as the last close. Prices should cross below this level for confirmation.
The stop loss level is defined as the higher of the last two highs. Following the bearish signal, if prices go up instead of going down, and close or make two consecutive daily highs above the stop loss level, while no bullish pattern is detected, then the stop loss is triggered.