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Written and copyright © 2008-2010 by Thomas N. Bulkowski. All rights reserved.
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.
Two black gapping candle pattern acts as a continuation of the downward price trend. Look for two black candles that gap below the prior one and the second of the two candles has a lower high.
That combination is simple enough and it appears often, so you will have no trouble finding it in real time trading or in a historical price series.
The exciting thing about this candlestick is that is performs so well, but a check of the numbers shows that all is not rosy. The two black gapping candles does best after an upward breakout,
but performance after downward breakouts really suffers.
Important Results
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Theoretical performance: Bearish continuation
Tested performance: Bearish continuation 68% of the time
Frequency rank: 29
Overall performance rank: 10
Best percentage meeting price target: 61% (bull market, up breakout)
Best average move in 10 days: 6.45% (bear market, up breakout)
Best 10-day performance rank: 14 (bull 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.
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 Two Black Gapping
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Discussion
The two black gapping candlestick acts as a bearish continuation pattern both in theory and after testing. The overall performance rank is 10, which it near the top (1) out of 103
candle types. The reason for that high score is that upward breakouts do well enough that downward breakouts do not have enough juice to pull the results lower.
The best average move 10 days after the breakout is a rise of 6.45% in a bear market. I consider moves of 6% or higher to be good, so this joins the few candle patterns that make the
grade. The best performance rank is 14, which is also high on the list.
Identification Guidelines
| Characteristic | Discussion |
| Number of candle lines | Two. |
| Price trend leading to the pattern | Downward. |
| Configuration | Look for a price gap followed by two black candles. The second black candle should have a high below the prior candle’s high. |
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.
- Two black gapping candles that appear within a third of the yearly low perform best -- page 848.
- Select tall candles for the best performance -- page 848.
- For the best performance, trade the two black gapping candles when the primary trend is downward -- page 850.
Example
This chart shows the two black gapping candlestick pattern circled in red on the daily scale. Price trends upward at a sedate pace then forms a series
of small black candles, mostly trending lower. The next day, an opening black marubozu candlestick leads the way downward, gapping below the prior black
candle. The following day, another black candle appears but this one has a lower high, just as it is required to have for a two black gapping candlestick. Price doesn’t really pause
on the way down from there, either.
Notice the price scale. The stock dropped from a peak of 13 to a low of 6 and change in a matter of weeks. Ouch.
The breakout from this candle is downward when price closes below the lowest low in the pattern. Since price trends downward into the two black gapping candlesticks and exits downward,
the candle patterns acts as a continuation of the downward price trend.
-- Thomas Bulkowski
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