Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30 years of stock market experience and widely regarded as a leading expert on chart patterns. His four books, including the best selling Encyclopedia of Chart Patterns, have been translated into seven languages. He may be reached at

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Bulkowski's Bearish Separating Lines

Market

Industrials (^DJI):

Transports (^DJT):

Utilities (^DJU):

Nasdaq (^IXIC):

S&P 500 (^GSPC):

As of 02/07/2012

12,878 33.07 0.3%

5,323 -10.92 -0.2%

452 2.11 0.5%

2,904 2.09 0.1%

1,347 2.72 0.2%

YTD

5.4%

6.0%

-2.7%

11.5%

7.1%

Tom's Targets Overview: 02/03/2012

13,100 or 12,400 by 02/15/2012

5,500 or 5,150 by 02/15/2012

470 or 440 by 02/15/2012

3,100 or 2,800 by 02/15/2012

1,375 or 1,300 by 02/15/2012

Test Portfolios and CPI

Indus. strength: 2.4%

Mutt Losers: None YTD

Mutt Winners: 2.5%

Wilder RSI: None YTD

CPI:

on 12/20/2011

In my book, Encyclopedia of Candlestick Charts, pictured on the right, I explore the entire range of candlestick patterns from abandoned babies to windows (not exactly A to Z, but you get the idea), in both bull and bear markets, using almost 5 million candle lines in the tests.

The book takes an in-depth look at 103 candlestick patterns and reports on behavior and rank (3 types: reversal rate, frequency, and overall performance), identification guidelines, performance statistics (tables of general statistics, height, and volume), trading tactics (tables of statistics on reversal rates and performance indicators), and wraps each chapter with a sample trade. I share a sliver of that information below. If you like what you read here, then you will love the book. Help support this website and buy a copy by clicking on the above link.

The bearish separating lines candlestick pattern reminds me of the meeting lines candlestick except for two things: The behavior and candle colors are different.

The bearish separating lines is a bearish continuation pattern. For a two line candle, the bearish separating lines combination is rare, so you will have a difficult time finding examples. Overall performance is just mid list, too, so you might think that it was not be worth the hunt. However, the candle does very well after an upward breakout.

Important Results

Discussion

Identification Guidelines

Three Trading Tidbits

Example

Bearish Separating Lines: Important Results

Theoretical performance: Bearish continuation

Tested performance: Bearish continuation 63% of the time

Frequency rank: 82

Overall performance rank: 40

Best percentage meeting price target: 67% (bull market, up breakout)

Best average move in 10 days: 8.36% (bear market, up breakout)

Best 10-day performance rank: 5 (bear market, up breakout)

All ranks are out of 103 candlestick patterns with the top performer ranking 1. "Best" means the highest rated of the four combinations of bull/bear market, up/down breakouts.

The above numbers are based on hundreds of perfect trades. See the glossary for definitions.

Bearish Separating Lines

Bearish Separating Lines: Discussion

The bearish separating lines candlestick acts in theory as it does in reality, as a bearish continuation of the exiting price trend 63% of the time. That is quite good. As I mentioned in the introduction, the candle is rare as demonstrated by a frequency rank of 82 out of 103 candle types.

The overall performance rank is 40, which is about mid list. However, the bearish separating lines candlestick performs best after upward breakouts. You will want to avoid those with downward breakouts because performance is lousy.

The average rise 10 days after the breakout in a bear market is 8.36%, ranking 5th. I consider moves of 6% or higher to be good, so this is superb.

Bearish Separating Lines: Identification Guidelines

Characteristic	Discussion
Number of candle lines	Two.
Price trend leading to the pattern	Downward.
Configuration	Look for a tall white candle in a downward price trend followed by a tall black candle. The opening price of the two candles should be similar.

Bearish Separating Lines: Three Trading Tidbits

If you want a few bones from my Encyclopedia of candlestick charts book, here are three to chew on. The pages refer to the book where the tips appear.

Bearish separating lines candles that appear within a third of the yearly low perform best -- page 644.
Select tall candles for the best performance -- page 645.
Price breaks out downward most often -- page 647.

Bearish Separating Lines: Example

The bearish separating lines candlestick on the daily scale

The chart shows bearish separating lines candlestick circled in red on the daily scale. The downward price trend begins in mid June, then goes horizontal into July before resuming the down swing when the bearish separating lines appear. The first candlestick is a tall white one. A tall black candle, which does not appear to be tall but is when taken into the context of the many small candles in early July, shows and the opening prices match between the black and white candles.

The breakout from this bearish separating lines is downward when price closes below the bottom of the two-day candle. Since price enters from the top trending down and breaks out downward, this candlestick is a continuation pattern. It continues the downtrend already underway.

-- Thomas Bulkowski