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 Bullish Three-Line Strike

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 bullish three-line strike candlestick pattern is another rare candle with decent performance. The few samples found, 69, may be the reason why the pattern works so well.

Often, the best performing candles are those that you can't find (they don't occur frequently), and since you can't find them, reliable testing is impossible. Drawing conclusions from what appears to be top-rated performance is risky and should be avoided. In other words, this candle doesn't perform as well as the numbers suggest.

Theory says that this candle is bullish, but since the last candle line takes price below the open of the first candle, I really don't see how that is bullish. I found that the pattern acts as a bearish reversal 65% of the time. The reason for the comparatively high reversal rate is because price closes near the bottom of the candlestick pattern and all a reversal has to do it post a close below the bottom of the candle pattern. That is much easier to do than close above the other end (the top).

Important Results

Discussion

Identification Guidelines

Three Trading Tidbits

Example

Bullish Three-Line Strike: Important Results

Theoretical performance: Bullish continuation.

Tested performance: Bearish reversal 65% of the time

Frequency rank: 95

Overall performance rank: 2

Best percentage meeting price target: 50% (bear market, down breakout)

Best average move in 10 days: 16.91% (bear market, up breakout)

Best 10-day performance rank: 1 (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.

Bullish Three-Line Strike

Bullish Three-Line Strike: Discussion

Theory differs from actual behavior for the bullish three-line strike candlestick pattern. It is supposed to act as a bullish continuation, but it actually is a bearish reversal. With a frequency rank of 95, you will not find many of them in your lifetime. However, the overall performance ranks 2 where 1 is best. That is likely due to the low sample count.

The best average move in 10 days averages 16.91%. When 6% is considered good, a 16.91% rise is huge!. It is also due to just two patterns. Thus, do not expect to achieve anywhere near that kind of return in 10 days. That high number also accounts for the best 10-day performance rank of 1, which occurred in a bear market after an upward breakout.

Bullish Three-Line Strike: Identification Guidelines

Characteristic	Discussion
Number of candle lines	Four.
Price trend leading to the pattern	Upward
Configuration	Look for three white candles each with a higher close. A tall black candle should open higher, but close below the open of the first candle.

Bullish Three-Line Strike: 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.

Trade tall bullish three-line strike candlestick patterns in a bear market for the best performance -- page 768.
After a downward breakout from a bullish three-line strike candlestick pattern in an uptrend, wait 3 days before selling. -- page 770.
Volume gives performance clues -- page 769.

Bullish Three-Line Strike: Example

The bullish three-line strike candlestick on the daily scale

The daily chart shows a bullish three-line strike candlestick pattern. Price forms three white candles, each with a higher close, in an upward price trend. A black candle opens higher but price plummets so that it closes below the opening price of the first candle. The next day, price gaps open lower and closes lower still, staging a downward breakout.

This bullish three-line strike candlestick pattern acts as a bearish reversal of the upward price trend. That disobeys candle theory which says that this candlestick pattern acts as a continuation of the prevailing price trend.

-- Thomas Bulkowski