Bearish Short Line

The bearish short line is a frequently occurring one-bar indecision Japanese candlestick pattern that history shows us leads to a bullish move.

By using data-based technical analysis, there is a way to turn this tiny candlestick pattern into a profitable trading pattern.

If you’re interested, keep reading.

What Is a Short Line Candlestick Pattern?

Bearish Short Line Candlestick Pattern Illustration © Analyzing Alpha
Bearish Short Line Candlestick Pattern Illustration

The short line is a frequently occurring one-bar candlestick pattern that technical analysts consider an indecision candlestick.

But before we cover the backtest results, let’s learn how to identify the bearish short line on our candlestick charts.

How to Identify the Bearish Short Line Candlestick Pattern

Bearish Short Line Candlestick Pattern on the Apple (AAPL) October 27th, 2021 daily chart
Bearish Short Line Candlestick Pattern on the Apple (AAPL) October 27th, 2021 daily chart

The following are the requirements for a valid bearish short line pattern:

  • The candle must be bearish with a short real body with short upper and lower shadows.

The one-bar patterns are elementary to identify.

The short line pattern appears on the Apple (AAPL) October 21st, 2021, daily chart. I’ve removed the moving average on the chart as the short line is valid in all market trends. 

We see a single candle with a small bearish body with the opening and closing prices close together and short upper and lower wicks fulfilling the pattern requirements.

Now that we can identify these bearish short line patterns, let’s move on to trading them.

How to Trade the Bearish Short Line Pattern

According to our backtests, traders should use a bullish strategy in all markets with a risk-reward of 1:5, expecting a longer-term move.

But before we learn how to capitalize on the bearish short line pattern’s volatility, let’s analyze how most traders trade this pattern.

Bearish Short Lines Bearish Candlestick Continuation Trade Setup

Bearish Short Line Bearish Trade Setup on the Microsoft (MSFT) December 31st, 2021 daily chart.
Bearish Short Line Bearish Trade Setup on the Microsoft (MSFT) December 31st, 2021 daily chart.

The bearish short line is considered indecision, with most technical analysis literature expecting the candle to break bear.

And while most consider this a bearish continuation, I don’t like the language because what happens if this pattern reverses in a bull market? That’s why even though I titled this a bearish continuation, it is a bearish candlestick continuation that can occur in any trend.

We see a single red candle with a short body and short upper and lower wicks on the Microsoft (MSFT) December 31st, 2021 daily chart creating a valid pattern.

Traders typically go short at a break of short line candle low setting a stop loss just above the high.

Traders that took this trade made profits, but they’re also fighting an uphill battle trading with a negative edge, according to history.

And while history rarely repeats itself, it often rhymes.

Bearish Short Line Bullish Candlestick Reversal Trade Setup

Bearish Short Line Bullish Trade Setup on the Tesla (TSLA) December 20th, 2021 daily chart.
Bearish Short Line Bullish Trade Setup on the Tesla (TSLA) December 20th, 2021 daily chart.

Data-driven traders understand that bearish short line candlesticks that go bull within three days of pattern formation are a profitable proposition.

We see a bearish candle with a short real body and small upper and lower shadows on the Tesla daily chart above. With the pattern identified, traders look to go long at a break of the high within three days of the original pattern identification.

This occurs the next day on the Tesla daily chart leading to a rather sizeable bullish reversal.

And while history tells us that the bearish short line is a bullish pattern, how profitable is this often misunderstood candlestick?

Does the Bearish Short Line Work? (Backtest Results)

I backtested the bearish short line candlestick pattern on the daily timeframe in the crypto, forex, and stock markets using the following rules:

  • A close above the 50-day SMA constitutes an uptrend.
  • I tested risk-reward ranges from 1 to 5. 
  • The optimal risk-reward ratio is selected using profit per bar.
  • Entry and exits are discussed in the how-to trade section above.
  • Confirmation must occur within three days of the pattern signal.

Similar Candlestick Patterns

Many candlestick patterns look similar to the bearish short line candle.

Bullish Short Line Lines vs. Bearish Short Line

Bullish Short Line Candlestick Pattern Illustration © Analyzing Alpha
Bullish Short Line Candlestick Pattern Illustration

The bullish short line candlestick pattern is the mirror opposite of the bearish short line. They are both single candlestick patterns typically thought of by most technical analysts as indecision candles. They do not have a trend requirement and require a short body with tiny wicks.

The only difference between the bullish short line and the bearish short line is that the bullish short line’s open is lower than the close, and the bearish short line has an open higher than its close.

Bearish Doji vs. Bearish Short Line

Common Doji Candlestick Pattern Illustration © Analyzing Alpha
Common Doji Candlestick Pattern Illustration

The bearish doji and bearish short line candlesticks are also very similar. Neither requires a trend, and both supposedly represent indecision candlesticks.

The only difference between the bearish doji and bearish short line is that the bearish doji’s open and close are very close to each other, whereas the bearish short line requires that there is room between the open and close, creating the short body.

Bearish Long Line vs. Bearish Short Line

Bearish Long Line Candlestick Pattern Illustration © Analyzing Alpha
Bearish Long Line Candlestick Pattern Illustration

The bearish long line candlestick pattern and the bearish short line pattern are close cousins. They are single candlestick patterns that do not require a trend. The only difference between the bearish long line candlestick and the bearish short line candlestick is that the body of the long line is large while the short line is small.

The Bottom Line

The bearish short line is a frequently occurring candlestick pattern traditionally thought of as an indecision candlestick. Still, the data from our 21-year backtest shows that the pattern typically leads to a longer-term bullish candle reversal.

Check out the definitive guide, where I backtest and explain both advanced and basic candlestick patterns.

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