Learning how to read and trade them adds a valuable weapon to your trading arsenal. Most technical analysis is based on Japanese candlestick charts, after all. In this post, we’ll go over everything you need to know to trade above the stomach candle patterns.
To start, let’s define them.
What Is an Above the Stomach Candlestick Pattern?
An above the stomach candlestick pattern is a bullish reversal formation. They occur during downtrends and consist of 1) a large-bodied candlestick moving down and 2) a large-bodied candlestick moving up that opens at the midpoint of the first and closes above its open.
It is the bullish version of the stomach pattern, and therefore the opposite of the below the stomach pattern. It is also similar to the bullish harami and three inside up patterns.
Of course, no candlestick pattern guarantees a particular outcome. They are more like suggestions than promises.
So, what do below the stomach patterns really tell you?
What Above the Stomach Patterns Mean
Unlike some patterns, English speakers do not use the Japanese name for this one.
The term “above the stomach” is an anthropomorphism based on the fact that the stomach is at about the halfway point of the human body. While this probably does make it easier to remember, it doesn’t reveal much else.
In trading terms:
- First Period – The price decreases significantly, in line with the downward trend.
- Pre/Post-Market Trading – The price increases at least halfway back to the open of the first period
- Second Period – The price increases significantly, closing higher than the open of the prior period.
This threatens the ongoing downtrend and creates several decision zones that are likely to play a major role in determining trend direction. If sellers cannot push price back below the formation, it may lead to a bullish reversal and subsequent uptrend.
Figuratively, above the stomachs indicate that the bears may have bitten off more than they can chew.
How To Recognize Stomach Candlestick Patterns
Patterns are attractive partly because they stand out.
To the untrained eye, they may mean nothing. But to those with experience, they are something like a beacon. They draw your attention to a specific segment of price action, encouraging you to look more closely.
To gain this insight, all you need to do is learn the rules and practice finding them on the charts.
By definition, an above the stomach pattern has several requirements.
- It must appear during a general downtrend.
- The first candle must be a bearish long-line candlestick.
- The second candle must be a bullish long-line candlestick.
- The second candle must open at the halfway mark of the first candle’s body.
- The second candle must close above the first candle’s body.
As you can see, most of the rules center around the second candlestick.
However, some exceptions may be acceptable.
- The first candle doesn’t necessarily have to be a long candle, as long as it is not a short-line candle (ie. spinning top).
- The second candle doesn’t necessarily have to be a long candle as long as it is bullish and closes above the first candle’s body.
- The second candle doesn’t have to open exactly in line with the middle of the first candle, as long as it has a substantial inside open.
- It can take multiple candles to close above the original open, as long as none of the subsequent candles breach the midpoint of the first candle.
You may find better results by stretching some of these criteria (or even adding your own). For instance, your analysis may reveal that stomach patterns in which both candles are approximately the same length perform better. Or, you may find something else entirely.
Technically, these variations may fall more accurately under other candlestick reversal patterns, like the bullish harami or three inside up.
This is okay though, as implication supersedes classification. And similar patterns often have similar implications (though not always).
Yet, that does not mean that these standards are wholly irrelevant. In fact, certain ones are definitely mandatory, such as the midpoint inside open or the direction of the candles in relation to trend. It just means that deeper analysis may help you find more and/or better trading opportunities.
Ultimately, how seriously you take each of these guidelines is up to you. Don’t forget that the purpose of analyzing candlestick patterns is to interpret underlying price action. Your pattern labeling skills are less important.
To this end, you need to understand where they fit.
Where Above the Stomachs Fit in the Chart Narrative
The markets are often characterized as a battle between the bulls and the bears.
Above the stomach patterns show that bears pressed their advantage on candle one, lost the control between candles one and two, then surrendered to the bulls completely by the end of candle two.
On the chart, it looks like a regurgitation of trend.
The first day played out as expected, with a powerful move down. Then, price rose back up during post and premarket trading. As traders awoke the next morning, they were surprised to see that half of the previous day’s action had been canceled out. This invigorated the bulls, who took the opportunity to continue pushing price up. By the close of the second day, price was higher than it opened on the first day.
The stage is now set for a fight over the price levels highlighted by this price action. If buyers can defend these levels, the chance of a bullish reversal increases.
Please note: This is only an illustration. Above the stomach patterns can reflect any number of real-world scenarios.
In the short-term, it amounts to a gut-punch to the bears.
The question for traders:
“Is this just a hiccup in the downtrend or will the bulls take over from here?”
To answer that question, you’ll need more than an understanding of Japanese candlesticks and candlestick patterns. You’ll want to evaluate both within the context of longer-term chart patterns as well as trend and price levels. You’ll also want to make use of your own chart markup and indicators.
Explore the history of your preferred asset(s) with respect to stomach candlestick patterns and apply your findings to your own trading style.
The more thorough your technical analysis, the more clear the story in the charts becomes.
How To Trade Above the Stomach Candle Patterns
Bullish reversal patterns are great places to enter longs or exit shorts, especially when you see them coming.
As such, above the stomach candle patterns serve as easy-to-spot signs of potential changes from bearish to bullish momentum. They may even lead to cycle-ending bottoms.
In most cases, you can assign greater weight to multi-stick patterns than single candles because they provide more information over a longer duration. However, you should wait for all candles to close before making any decisions. Otherwise, there is a good chance that you’ll get caught in a fake out.
Additionally, there are a few other things you should consider before trading candlestick patterns.
First and foremost, they are never a “sure thing.” According to Bulkowski’s Encyclopedia of Candlestick Patterns, above the stomachs have a hit rate of 66% (while below the stomachs have a hit rate of 60%). Sure, that is pretty decent but definitely not a certainty.
What’s more, candlestick patterns do not have standard price targets or measured moves like chart patterns do. That makes position management trickier.
Plus, failed reversal patterns often lead to continuation or consolidation. Thus, you’d be wise to seek additional confirmation factors to increase your odds of a successful trade.
Some of these include:
- Volume – Reversals are often accompanied by elevated trading volume. For stomach patterns, you want to see a spike on the second candle (or shortly thereafter).
- Price Formations – Bullish reversal patterns that form just above important support levels tend to be more reliable. They also reinforce the strength of these levels.
- Oscillator Shift – Oscillating indicators like the RSI or stochastics are commonly used to identify reversals by analyzing slope, percentile, and/or divergence.
The more corroborating elements are present, the more confident you can be about the strength of a bearish stomach reversal signal.
Even so, it would be difficult to form a successful trading strategy built around any single candlestick pattern. There simply isn’t enough there to develop a strong edge. It would still be suboptimal with an expert understanding of trading math, order execution, market psychology, risk management, options, and automation.
In essence, stomach patterns are much better idea givers than trade makers.
Better yet, you’ll probably find more success building your strategy around other tools and using candlestick patterns as the final point of confirmation.
Other Candlestick Pattern Types
There are many bullish reversal candlestick patterns.
The above the stomach is only one.
Likewise, there are many bearish reversal candlestick patterns. Not to mention, you have bullish continuation candlestick patterns and bearish continuation candlestick patterns.
For most traders though, tackling all candlestick patterns at once may be the best learning path.
- Abandoned Baby – Bearish | Bullish
- Breakaway – Bearish | Bullish
- Counterattack Line – Bearish | Bullish
- Doji Star – Evening | Morning
- Engulfing – Bearish | Bullish
- Harami – Bearish | Bullish
- Harami Cross – Bearish | Bullish
- Hikkake – Bearish | Bullish
- In Neck – Bearish | Bullish
- Kicking – Down | Up
- Ladder – Top | Bottom
- Last Engulfing – Top | Bottom
- Long Day – Black | White
- Mat Hold – Bearish | Bullish
- Matching – High | Low
- Meeting Lines – Bearish | Bullish
- On Neck – Bearish | Bullish
- Separating Lines – Bearish | Bullish
- Star – Evening | Morning
- Tasuki Gap – Downside | Upside
- Three Inside – Down | Up
- Three Line Strike – Bearish | Bullish
- Three Methods – Falling | Rising
- Three Outside – Down | Up
- Tri-Star – Bearish | Bullish
- Tweezer – Top | Bottom
- Window – Falling | Rising
Sure, it is quite a long list.
Luckily for us all, you don’t need to memorize every pattern and its criteria. Instead, focus on price action and technical analysis principles. The goal is to be able to look at any group of candlesticks and understand what they mean.
The more candlestick patterns you study, the easier this will become.
Takeaways
To review:
Above the stomachs are a type of candlestick pattern that signal a potential bullish reversal. While not a guarantee, their appearance may indicate that market conditions are shifting in favor of buyers. When used properly, this can help you find winning trades.
Of course, there are other candlestick patterns that you should learn about. Still, the ability to recognize patterns is not enough to trade successfully on its own.
Nonetheless, you’ve now added one more weapon to your arsenal.
Have questions or more information to add? Contribute to the conversation in the comments below! Or, if you know someone who could benefit from this post, share it with them. You can also check out our Candlestick Patterns Guide to improve your candlestick analysis skills.