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 matching low candle patterns.
To start, let’s define them.
What Is a Matching Low Candlestick Pattern?
A matching low is a bullish reversal formation. They occur during downtrends and consist of 1) a large-bodied candlestick moving down and 2) a candlestick moving down that opens inside the first and closes at the same price.
***Please note, most sources list the matching lows as reversal patterns. However, various quantitative analyses show that it can act as a reversal pattern or continuation pattern. That makes both establishing criteria and using additional confirmation factors especially important.
It is the bullish version of the matching pattern, and therefore the opposite of the matching high pattern. It is also similar to the tweezer bottom pattern.
Of course, no candlestick pattern guarantees a particular outcome. They are more like suggestions than promises.
So, what do matching low patterns really tell you?
What Matching Low Patterns Mean
Unlike most candlestick patterns, the name actually describes it very well.
The term “matching low” is a direct description of the formation. That makes it extremely easy to remember. This is rare, as most pattern names are not helpful at all. Some even go by the original Japanese moniker.
In trading terms:
- First Period – The price decreases significantly, in line with the downward trend.
- Pre/Post-Market Trading – The price increases.
- Second Period – The price decreases, closing at the same price as 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, matching lows indicate that price may have hit its floor.
How To Recognize Matching Low 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, a matching low pattern has several requirements.
- It must appear during a general downtrend.
- The first candle must be a bearish long-line candlestick.
- The first candle must not have a lower wick.
- The second candle must open inside the first candle’s body.
- The second candle must close at the bottom of the first candle’s body.
- The second candle must not be a doji candlestick.
- The second candle must not have a lower wick.
As you can see, most of this pattern’s 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 has a decent-sized body and no lower wick.
- The second candle doesn’t necessarily have to open inside the first candle, as long as it opens above the first candle’s close.
- The second candle doesn’t necessarily have to be a bullish candle, as long the bottom of the body and lows of both candles match.
- Either candle can have a lower wick, as long as they are both bullish and have the same close.
Furthermore, some traders dispute whether it is the closes or the lows that must match.
You may find better results by stretching some of these criteria (or even adding your own). For instance, your analysis may reveal that matching patterns in which the second candle is larger than the first candle perform more reliably. Or, you may find the opposite.
Technically, these variations may fall more accurately under other candlestick reversal patterns, like the tweezer bottom.
This is okay though, as implication supersedes classification. And similar patterns usually 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 matching closes (or lows). It just means that deeper examination may help you identify 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 Matching Lows Fit in the Chart Narrative
The markets are often described as a battle between the bulls and the bears.
Matching low patterns show that the bears pressed their advantage on candle one, lost control between candles one and two, then reasserted dominance by the end of candle two (at least for the time being).
On the chart, it looks like a price ran into a wall.
The first day played out as expected, with a powerful move down that closed its low. After the bell, price rose back up to a moderate degree. As traders awoke the next morning to an inside open, a feeling of uncertainty descended upon the market. Once trading opened on the second day, there was some back-and-forth action. But over the course of the day, price gradually sank back down to match the previous day’s closing (and lowest) price.
The stage is now set for a fight over the levels highlighted by this price action. If buyers can defend these levels, the chance of a bearish reversal increases.
Please note: This is only an illustration. Matching low patterns can reflect any number of real-world scenarios.
In the short-term, it amounts to a final stand for the bulls.
The question for traders:
“Can the bulls match the mounting selling pressure in order to force a reversal?”
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 matching 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 Matching Low Candle Patterns
Bullish reversal patterns are great places to enter longs or exit shorts, especially when you see them coming.
As such, matching low 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, if you treat them as continuation signals, matching lows have a 61% hit rate while matching highs were not analyzed. Obviously, this is in opposition to the reversal signal narrative.
What’s more, candlestick patterns do not have uniform 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 and continuations are often accompanied by elevated trading volume. For matching patterns, the direction of the next spike after the pattern may indicate how things will play out.
- Price Formations – Where patterns appear in relation to price levels and trend lines can also help determine future direction. Always be aware of support and resistance!
- Oscillator Shift – Oscillating indicators like the RSI or stochastics are commonly used to identify reversal or continuation by analyzing slope, percentile, and/or divergence.
The more corroborating elements are present, the more confident you can be about the strength of a bullish matching 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, matching patterns are more useful 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 matching low 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
- Stomach – Below | Above
- 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:
Matching lows 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 trading 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.