The stick sandwich candlestick pattern is a three-bar bullish reversal Japanese candlestick pattern that’s best traded using bearish continuation strategies in the stock market according backtesting.
Forex and crypto traders should avoid trading the stick sandwich pattern due to insufficient data to determine statistically significant trading strategies.
Keep reading if you hunger to learn what history says about the three-bar pattern.
What Is a Stick Sandwich Candlestick Pattern?
The stick sandwich is a rare three-bar bullish reversal pattern.
The stick sandwich’s name comes from the middle green candle getting sandwiched between two red candle “sticks”.
Before we take a bite out of the market, let’s learn how to identify these three candlesticks.
How to Identify the Stick Sandwich Pattern
The following are the requirements for a valid stalled candlestick pattern:
- The first candle is bearish.
- The second candle is bullish and only trades above the first candle’s close.
- The third candle is bearish, with a close equal to the first candle’s close.
- The stick sandwich must occur in a downtrend.
The stick sandwich appeared on Akamai’s (AKAM) daily chart on September 18th, 2002. The price is in a bearish trend as it’s below the fifty-day moving average. The first candle is bearish. The second candle is bullish and only trades above the previous candle’s close. The third candle is bearish with a close equal to the first, fulfilling the stick sandwich pattern requirements.
Now that we can identify this tasty pattern, let’s learn the best stick sandwich trading strategies.
How to Trade the Stick Sandwich Candlestick Pattern
Professional traders should use a bearish continuation trading strategy in the stock market. Data-driven crypto and forex traders will want to avoid this pattern due to insufficient daily data to determine statistically significant trading strategies.
Before we learn history’s best stick sandwich trading strategies, let’s learn how traditional traders get indigestion from these three candlesticks.
Stick Sandwich Bullish Reversal Trade Setup
Let’s practice identifying the stick sandwich.
The price is hovering around the fifty-day moving average, but the final candle closes below the fifty-day moving average giving us a bearish trend. We have a bearish candle, followed by a bullish candle whose range is entirely above the last candle’s close, and a third candle that is bearish with a close equal to the first, fulfilling the pattern requirements.
With the stalled pattern identified, traditional traders enter long at a break of the second candle’s high and set a stop loss below the third candle’s low.
We can see traditional traders using this strategy on the daily chart of Applied Materials (AMAT) on August 1st, 2018, produced profits.
The challenge is that these conventional traders are on the wrong side of history.
Stick Sandwich Bearish Continuation Trade Setup
The price is below the fifty-day moving average, giving us a short-term bear market. There is a bearish candle, a bullish candle whose range is above the previous candle’s close, and a bearish candle with a close equal to the first.
With the pattern identified, savvy stock traders enter short when the price moves below the third candle’s close, setting a stop loss above the second candle’s high.
We’ll use the Apple (AAPL) daily chart on June 15th, 2011, to illustrate this.
Notice how traders using the close reduce their risk and increase their potential reward assuming this pattern has a bearish lean.
Speaking of growing potential rewards, what can history tell us about the best stick sandwich trading strategies?
Does the Stick Sandwich Pattern Work? (Backtest Results)
I backtested the stick sandwich 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
Traders confuse the stick sandwich pattern with other candlestick patterns.
Matching Low vs. Stick Sandwich
The matching low is a two-bar bullish reversal pattern similar to the stick sandwich. You can think of the matching low as a stick sandwich without the meat. The matching low requires two consecutive candles sharing a close, while the stick sandwich has a candle between them.
The Bottom Line
The stick sandwich pattern is a rare three-bar bullish reversal pattern that’s best traded using a bearish continuation strategy in the stock market, according to a 21-year backtest.
Data-driven crypto and forex traders should skip this pattern due to insufficient daily data to determine the best stick sandwich training strategy with any statistical significance.
It’s much better to trade the best high-probability candlestick patterns.