Bullish Stick Sandwich Pattern – Formation, Trading Ideas And More

Bullish Stick Sandwich Pattern: Technical analysts rely upon chart and candlestick patterns to analyze the price of the stock and predict its future movement. Each pattern formed in the market has a reason behind its formation and gives an indication.

There are a few important patterns that have led to certain movements in the price after its formation. In this article, we will learn about one such pattern called bullish stitch sandwich pattern.

What is a Bullish Stick Sandwich Pattern?

A stick sandwich pattern is a three-candlestick pattern that indicates a potential reversal. In this pattern, the centre candle is oppositely coloured to the two candles on either side of it.

A bullish stick sandwich pattern is a bullish reversal pattern where the middle candle is a green candle and the other two candles are red candles. It is also necessary for the third candle to close near the close of the first candle and it should also engulf the middle candle. 

It is preferable for this pattern to appear in a downtrend as the accuracy of the indication increases in that situation.

Bullish Stick Sandwich Pattern – Formation

Three conditions need to be filled for a three-candlestick pattern to be called a bullish stick sandwich pattern – 

Condition 1- The prior trend before the formation of this pattern needs to be bearish/downtrend.

Condition 2- The middle candle needs to be bullish (green candle) and the outside two candles need to be bearish (red candle).

Condition 3- The third candle needs to engulf the middle candle and also close at or near the close of the first candle.

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Bullish Stick Sandwich Pattern – Psychology

In a bearish market, the sellers are in control of the market and hence the first candle is red. However, the formation of the green candle indicates that the selling pressure has weakened and more buyers might come into the market.

The third candle (red candle) then closes at or near the close of the first candle which shows that the price has a strong support zone at that price. Hence the market may take support at that level and might potentially move upwards. 

Bullish Stick Sandwich Pattern – Trading Ideas

It is necessary for the prior trend before the formation of this pattern to be a downtrend. Once formed in a downtrend, traders can take a trade as follows:

• Entry- Traders can take a long position when the price of the stock starts trading above the open price of the third candle of the Bullish Stick Sandwich pattern.

• Profit Target- Traders can exit the trade once the price reaches the immediate resistance zone. Once this level is reached, one can also book partial profits in the trade and hold on to the remaining position until the next support level.

• Stop loss- Traders should place the stop loss right below the low of the pattern.

Does Bullish Stick Sandwich always indicate Bullish movement?

The bullish stick sandwich pattern is not one of the frequently appearing candlestick patterns. The trader may misinterpret this pattern as a bearish engulfing which indicates a downward movement of the price. Thus, during the formation of the pattern, one should interpret the two close price of the red candles formed as a support zone since the price failed to break below these levels

Furthermore, one should note that this pattern does not indicate a complete trend reversal but rather indicates just a short upward movement.

Bullish Stick Sandwich Pattern – Example

In the above one-day chart of HDFC BANK, we can see the formation of the bullish stick sandwich pattern. We can observe that this pattern was formed after a downtrend and after its appearance, the price of the stock went up as discussed in this article.

At the time when this pattern was formed, traders could’ve taken a long position at Rs. 27.5, and the stop loss was Rs.26.3

Bullish Stick Sandwich Pattern – Key Characteristics

1. The Bullish stick sandwich pattern is formed in a downtrend.

2. It consists of three candles and the middle candle is green while the other two are red.

3. The close of the first and third candles are near the same price zone.

4. The third candle engulfs the second green candle.

5. The formation of this pattern indicates a weakening of the selling pressure.

6. The close price of the first and third candles acts as a support zone where the price may take support and move up.

7. The formation of this pattern indicates a short upward movement of the price.

Read more: Hanging Man Candlestick Pattern

Conclusion

In this article, we discussed the bullish stick sandwich pattern which is a short-term bullish movement indication pattern. We understood how to identify the pattern, the reason behind it, how to take a trade based on it, and the precautions that need to be taken while analyzing and taking trades.

Traders should not be taking a trade just based on this pattern but must also use other indicators before taking a trade. It is necessary to place a stop loss as it will minimize the losses in cases where the market moves against our analysis. What are your thoughts about this articles, please let us know in the comment section below.

Written by Praneeth Kadagi

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