The candlestick pattern known as “above the stomach” occurs over a period of nearly two sessions during a downtrend, typically at the bottom of the trend.
What is the Above the Stomach Candlestick Pattern?
The above the stomach candlestick pattern is a bullish reversal pattern that indicates a potential change in the larger trend of the market. It is composed of two technical indicators: a bullish mother candlestick and a doji child candlestick.
First identified and documented by Japanese candlestick charting expert, Steve Nison in his book, “Japanese Candlestick Charting Techniques.” The pattern is believed to have been used by Japanese traders for centuries before Nison’s documentation and popularization of the pattern in the West.
Brief summary of the Above the Stomach Pattern
The Above the Stomach Pattern starts with bears in control and a downward trend. However, on the second day, prices open and close above the midpoint of the previous day’s candle, indicating a shift in sentiment and predicting more buying in the following session.
Key factors to take into account
It is crucial to ensure that selling opportunities are present by verifying that the selling price, following the hollow candle, is close to the close of a filled candle.
When assessing the Above the Stomach Pattern, it is essential to consider the following:
- The pattern has a higher likelihood of success when it appears at resistance or support levels.
- Patterns with larger bodies tend to perform better than those with shorter bodies.
Above the Stomach Candlestick Pattern Strategy.
Bullish Above the Stomach Candlestick Pattern
- Patterns above the stomach appear during downtrends, indicating that it’s a good time to buy in the oversold zone.
- The closing price must be higher than the close of the first candle.
- The closing price should also be higher than the midpoint of the first candle’s real body.
Above the Stomach Candlestick Pattern Pros & Cons
Pros
- The Above the Stomach pattern is considered as a strong indicator of a possible change in the market direction.
- It offers traders a favorable opportunity to enter a long position.
- The pattern can serve as a confirmation for other bullish reversal signals.
Cons
- Identifying the Above the Stomach pattern may prove challenging in markets that are characterized by volatility and lack of direction, and its reliability in these conditions may be limited.
- It’s crucial to verify the pattern’s validity by cross-referencing it with other technical analysis or indicators to avoid false signals.
- The Above the Stomach pattern should not be the sole basis for making a trade, and it’s advisable to use it in combination with other forms of analysis for a more comprehensive strategy.
Conclusion
The Above the Stomach Candlestick Pattern is a bullish reversal signal that suggests a potential change in the trend of the market. It is made up of two technical indicators, a bullish mother candle, and a doji child candle. It appears during a downtrend, with bears in control, but on the second day, prices open and close above the midpoint of the previous day’s candle, indicating a shift in sentiment and suggesting more buying in the following session. While it is considered a strong indicator of a potential market reversal, traders should use it in conjunction with other forms of analysis for a more comprehensive strategy. Additionally, it may not be reliable in markets that are highly volatile or lack direction.
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