MAT HOLD

Description

The Mat Hold pattern, shown in Figure 3.19, is similar to the Rising Three Method. It has the look of the Upside Gap Two Crows except that the second black body (third day) dips into the body of the large white candle. It is followed by another small black body that dips a little further into the white candle body. The final day gaps to the upside. It continues its upward move to close higher than the trading range of any of the previous days. The implication is that the trend has not been stalled. This is a good point to add to positions. The Mat Hold pattern is a stronger continuation pattern than the Rising Three Method. During the days of "rest," unlike the Rising Three Method, the price stays close to the top of the white candle's upper range.

Criteria

• An uptrend is in progress. A long white candle forms.
• A gap up day that closes lower than its open creates a small black candle.
• The next two days form small candles somewhat like the Rising Three Method.
• The final day gaps up and closes above the trading ranges of the previous four days.

Pattern Psychology

The Rising Three Method is considered a rest in the trend, whereas the Mat Hold pattern does not fall back as far. The Mat Hold is easier to identify. The pull-back days are less concerning. The relatively flat rest period does not create the concern that the Rising Three Method does. After three days of the bears not being able to knock the price down to any great degree, the bulls step back in with confidence. (See Figure 3.20.)

THREE-LINE STRIKE

Description

Three Line Strike, also known as the Fooling Three Soldiers, is a four-line pattern that occurs during a defined trend (see Figure 3.21). This pattern represents a resting period, but unlike most resting periods, this one occurs all in one day. It ends up as an extended Three White Soldiers pattern.

Criteria

• Three White Soldiers, three white candles, are continuing an uptrend.
• The fourth day opens higher, but then pulls back to close below the open of the first white candle.

Pattern Psychology

The Three White Soldiers indicate the trend is continuing. The fourth day opens in a manner that resembles the previous days; however, profit taking sets in. It continues until the close is below the open of the first white candle. The black candle body completely negates the rise of the past three days, but it has gotten the short-term pull-back sentiment out of the way. The uptrend continues from this point.

UPSIDE GAP THREE METHOD

Description

The Upside Gap Three Method, shown in Figure 3.22, is a simplistic pattern, similar to the Upside Tasuki Gap, occurring in a strong trending market. In an uptrend, a gap occurs between two white candles. The final day opens within the top white body and closes in the lower white body, filling the gap between them.

Criteria

• In an uptrend, two white candles form, having the second one gapping above the first.
• The third day opens lower, in the body of the top white candle and closes in the body of the first white candle.

Pattern Psychology

A market has been moving in a direction, then a gap appears between two white candles. Gaps have significance in that they eventually have to be filled. The fact that it becomes filled immediately leads investors to think that the pull-back is just a profit-taking pull-back. The trend should resume immediately after the gap filling is satisfied.

Learning the Signals and Continuation Patterns

Hopefully you have read through the signals with relative speed, not getting bogged down with a memorization project. Chapter 5 explains how to remember the signals using fast and efficient methods. But before you get to that section, Chapter 4 spells out the investor psychology that was influential in forming the major signals. Knowing what makes a reversal signal brings invaluable perceptions into an investor's mental arsenal. Knowing why the masses invest the way they do yields eye-opening truths.

Learning the continuation patterns has important features. In some cases, differences between reversal patterns and the continuation of a trend can be subtle. The knowledge of how minor price variations can affect the direction of a trend can lead to enhancement of profits. As the charts are studied, recognizing the differences will greatly alter investment strategies.