Stick sandwich and Homing pigeon Candlestick Trading Strategies

STICK SANDWICH

Stick Sandwich Pattern Description

The Stick Sandwich in Figure 2.82 looks somewhat like an ice cream sandwich. It consists of two dark candles with a white candle in between. The closing prices of the two black candles are equal. This demonstrates an obvious support price. The probability of a reversal in the trend is high from this area.

Criteria

• A downtrend is concluded with a large black candle followed by a white candle. The white candle opens above the black candle close and closes above the black candles open.
• The final day completely engulfs the white candle and closes at the same level as the previous black candle.

Pattern Psychology

The bears have been in control for awhile. At the end of the downtrend, the last black candle is followed by a large white candle. The white candle opens higher than the close of the last black candle. It trades up for the rest of the day, closing above where the previous day opened. This action makes apparent to the bears that the downtrend may be coming to an end. The next day opens higher but trades down for the rest of the day. It cannot close lower than the previous low close of two days prior. The shorts take notice and start covering upon any buying strength over the next couple of days. (See Figure 2.83.)

HOMING PIGEON

HOMING PIGEON Description

The Homing Pigeon in Figure 2.84 is the same as the Harami except for the color of the second day's body. The pattern is composed of a two-candle formation in a downtrending market. Both candles are the same color as the current trend. The first body of the pattern is a long body, the second body is smaller. The open and the close of the second day occurs inside the open and the close of the previous day. Its presence indicates that the trend is over.

Criteria

• The body of the first candle is black, the body of the second candle is black.
• The downtrend has been evident for a good period. A long black candle occurs at the end of the trend.
• The second day opens higher than the close of the previous day and closes lower than the open but above the closing price of the prior day.
• Unlike the Western Inside Day, just the body needs to remain in the previous day's body, where as the Inside Day requires both the body and the shadows to remain inside the previous day's body.
• For a reversal signal, further confirmation is required to indicate that the trend is moving up.

Signal Enhancements

• The higher the second candle closes up on the first black candle, the more convincing that a reversal has occurred.

Pattern Psychology

After a strong downtrend has been in effect and after a long black candle, the bulls open the price higher than the previous close. The shorts get concerned and start covering. The price finishes lower for the day but not as low as the previous day. This is enough support to have the short sellers take notice that the trend has been violated. A strong day after that would convince everybody that the trend was reversing. Usually the volume is above the recent norm due to the unwinding of short positions. (See Figure 2.85.)