Understanding matching highs and lows patterns

Karan Dsij
/ Categories: Trending, Knowledge, Technical
Understanding matching highs and lows patterns

One of the candlestick patterns that we follow in our trading set-up for a bullish reversal pattern is identical lows and a higher

As the adage goes ‘A picture is worth a thousand words’, it is no different for a price action trader. He often asses his charts and looks for trades without looking or thinking about the noise of the outside world.   

There are many things that we can learn from the nitty-gritty of the price action as every candlestick shows us the path of buyers and sellers. A candlestick contains open, high, low & close and this helps us to obtain more information if we learn to read it in a proper manner. 

One of the candlestick patterns that we follow in our trading set-up for a bullish reversal pattern is identical lows and a higher close for long set-ups, which is an inspiration from the price action tracker.

Now, what are matching lows and a higher close pattern?  

It's a two candlestick pattern bullish reversal pattern wherein, lows of both the candles need to be in close vicinity of each other and the close of the second candle needs to be higher than the previous bar's high.  
 

The size of the second candle can also be very important in certain circumstances and something that traders need to take into account. Big candles can mean big momentum! Also, the traders need to check the closing of the second candle, which should ideally be in the 20 per cent of the upper range of the candle. It clearly illustrates that the bulls are in complete control of the price.  

Now, what is the psychology behind this pattern? 

The lows of both the candles need to be in close vicinity of each other. This indicates that the price got good demand from the buyers and also that the price closed above the high price of previous candles. This indicates that the bulls outweighed the power of bears and the closing price at the upper range of the candle indicates momentum is completely in favour of the bulls. 

An illustration of the set-up for a better understanding of the matching lows and a higher close pattern: 

 

For the short sell trading set-up, we follow matching highs and a lower close pattern. Similar to the bullish reversal pattern i.e. matching lows and a higher close pattern, it’s a two-candlestick pattern; however, it is completely opposite! This pattern will have almost identical highs and the price close below the low of the previous trading session  low and at the lower range of the candle.

Now, what is the psychology behind this pattern? 

Almost similar highs indicate that the price is facing supply at that level. Secondly, the price closing below the previous session’s low signifies the strength of the bears.  

Below is an illustration of the set-up for a better understanding of matching highs and a lower close pattern: 

The above patterns are quite reliable patterns to trade but like all price action setups and patterns, they are more useful if used in conjunction with proper technical parameters.   

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