Down Gap Side-by-Side White Lines

The bearish side-by-side white lines, also known as the down gap side-by-side white lines, is a three-bar bearish continuation Japanese candlestick pattern that is best traded using a mean reversion strategy according to extensive multiple market backtesting.

If you’re a candlestick technical analyst, you might be surprised to learn that history doesn’t support traditional trading methods. The data shows you should be going bullish instead of bear.

Keep reading if using data to discover the best bearish down gap side-by-side trading strategy excites you.

What Is a Bearish Side-by-Side White Lines Candlestick Pattern?

The bearish side-by-side white lines is a three-bar candle pattern that supposedly signals a bullish continuation.

The name comes from how it looks on a candlestick chart: two candlesticks forming a white line after a gap down.

But before we discuss how best to trade this pattern, let’s learn how to identify it on our candlestick charts.

How to Identify the Bearish Side-by-Side White Lines Candlestick Pattern

The following are the requirements for a valid bearish side-by-side white lines pattern:

• The first candle must be a long bearish candle.
• The second candle must gap down and form a bullish candle.
• The third candle must open near the last candle’s open and be about the same size as the previous candle and not close the gap.
• The down gap side-by-side must occur during a downtrend.

We see the down gap side-by-side white lines candlestick pattern on the Brookfield Asset Management (BAM) November 16th, 2007 daily chart.

Price is in a bearish trend as it’s below the fifty-day moving average. The first candlestick is bearish. The second candlestick has a downward gap and closes bullishly. The third candle opens near the previous day’s opening price without closing the gap, giving us the “white line”.

Now that we know how to identify the white lines pattern, how do we profit from these three candlesticks?

How to Trade the Bearish Side-by-Side White Lines Pattern

The bearish down gap side-by-side white lines should be traded using a bullish reversal trade strategy in the crypto and forex markets and a bullish mean reversion strategy in the stock market.

But before we learn how to trade the bearish white lines optimally, let’s know how traders traditionally treat this as a bearish pattern.

Bearish Side-by-Side White Lines Bearish Continuation Trade Setup

We see an existing bearish trend determined by the fifty-day moving average on the Aehr Test System (AEHR) November 24th, 2021, daily chart. The first day is a sizeable bearish candle. The next day gaps down and goes green (barely). The third day opens near the prior day’s open and goes green without closing the gap. The second and third candles are roughly the same size when including the wicks giving us the bearish side-by-side white lines pattern.

With the signal set, traditional traders short at a break of the third candle’s low and set a stop loss above the first candle’s high.

These traditional traders can expect to lose money on every trade if history is a guide. Instead, let’s go bull instead of expecting a downtrend continuation.

Bearish Side-by-Side White Lines Bullish Mean Reversion Trade Setup

The bearish side-by-size white lines stick out like a beautiful burrito found on the Chipolte Mexican Grill (CMG) March 30th, 2020, daily chat above.

Can you tell I’m writing this near lunchtime?

The price is in a downtrend as it’s below the fifty-day simple. We see a bearish doji followed by a gap down with the second and third candles forming a white line. We also see the third candle doesn’t close the gap, fulfilling the down gap white lines requirements.

With the pattern identified, smart stock traders wait for the price to cross below and the pattern’s low and enter long when the price moves back above that low, setting a stop loss of one ATR.

I know you’re hungry to learn, so let’s make this lucid using the above example.

The pattern low occurs on the second day at $613.81. The price crosses below and back above $613.81 on April 1st, triggering an entry. The bearish pressure wanes, and this data-driven stock trader likely took profits on April 4th for a nice gain.

But what about investors and traders in the forex and crypto markets?

Bearish Side-by-Side White Lines Bullish Reveral Trade Setup

We can skip identifying the bearish side-by-side as it should be old hat by now.

Data-driven forex and crypto traders enter long when the price crosses above the third candle’s close, setting a stop loss below the first candle’s low.

As we see on the above General Electric (GE) daily chart, traders executing this strategy profited handsomely.

Speaking of profits, what does history say about the best bearish down gap side-by-side white lines trading strategies?

Does the Bearish Side-by-Side White Lines Pattern Work? (Backtest Results)

Using the following rules, I backtested the bearish side-by-side white lines pattern on the daily timeframe in the crypto, forex, and stock markets.

• 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

Multiple candlestick patterns are often confused with the down gap white lines. It’s essential to understand the differences when using candlestick pattern technical analysis.

Bullish Side-by-Side White Lines vs. Bearish Side-by-Side White Lines

The bullish side-by-side white lines is the mirror opposite of its bearish brother. The only difference between the bullish and bearish is that the bullish must have a downtrend with an initial bullish candle that gaps into white lines. In contrast, the bearish exists in a downtrend with a first candle that’s bearish into white lines gapping down.

Downside Gap Three Methods vs. Down Gap Side-by-Side White Lines

The downside gap three methods, like the dow gap side-by-side, is a three-bar bearish continuation pattern. The difference between the downside gap three methods and the down gap side-by-side is the second candle is black, and the third candle is white and closes the gap in the three methods, whereas the second candle is white and the third candle doesn’t close the window in the white lines.

Downside Tasuki Gap vs. Down Gap Side-by-Side White Lines

The downside tasuki gap is a three-bar bearish continuation. The difference between the downside tasuki gap and the down gap side-by-side white lines is that the second candle is bearish, and the third candle opens within the real body of the prior. In contrast, the white lines have two white candles, with the third opening near the last candle’s opening.

The Bottom Line

The bearish side-by-side white lines, also known as the down gap side-by-side white lines, is a relatively infrequent three-bar bearish continuation pattern that’s best traded as a bearish reversal in the crypto and forex markets and a bearish mean reversion in the stock market according to a 21-year backtest.

Interested in more bearish reversals? Check out the backtest results to learn the best uptrend candlestick patterns.