Since candlesticks are the basic building block of most technical analysis, the ability to read the patterns they make is a valuable trading skill. Here, we’ll go over everything you need to know to make money with meeting lines candlestick patterns.
First though, let’s start with a definition.
What Is a Meeting Lines Candlestick Pattern?
A meeting lines pattern is a 2-candlestick formation that may signal a reversal. It consists of a large candle moving with the current trend followed by a large candle moving against the trend that is preceded by a gap and closes at the same price as the first.
The meeting lines pattern has both bearish and bullish versions. It is similar to the in neck and on neck patterns in that the closes of the two candles create a make-or-break price level. It also goes by the name “counterattack lines” and is related in concept to the separating lines.
Of course, candlestick patterns do not guarantee specific outcomes. Instead, they offer clues as to what is going on in the market.
So the question is, what do meeting lines really tell you?
What Meeting Lines Patterns Mean
Unlike some patterns, English speakers do not use the Japanese name for this one.
The term “meeting lines” reflects the nature of the pattern, two candles with opposing origins that converge on the same price. While this does describe the pattern fairly well, it isn’t especially memorable and doesn’t provide much insight.
In trading terms:
- During the first period, price drove strongly in the direction of the trend.
- Before the second period began, price drove further in the direction of the trend.
- During the second period, price drove strongly in the opposite direction of the trend and closed even with the open of the first period.
This sets the stage for reversal, as counter-trend traders appear to have leveled the playing field (at least for the time being).
How To Recognize Meeting Lines Candlestick Patterns
Traders are attracted to patterns partly because they stand out.
However, it’s easy to see things on the charts that aren’t truly there (or anticipate events that never come to fruition). That’s the main reason you should wait for all candles to close before making decisions based on candlestick patterns.
In theory, a meeting lines pattern must:
- Begin with a long candle moving with pre-existing trend.
- End with a long candle that 1) opens with a significant gap, 2) moves against trend, 3) is approximately the same size as the first, and 4) closes at the same price as the first.
In practicality, many traders will make some exceptions.
- The second candle doesn’t have to be exactly the same length as the first, as long as its body is relatively long.
- The second candle doesn’t have to close at exactly the same price as the first, as long as it closes near it.
- It can take two candles to fill the gap, as long as the combined length of the second and third candles is equal to the length of the first.
Depending on who you ask, any of these standards may be more or less important. Technically, it would be more accurate to classify some of these variants as a different candlestick reversal pattern, such as the in neck or on neck.
This is okay, as the implication means more than the classification. And similar patterns tend to have similar implications.
That’s not to say that these standards are altogether inconsequential (as we’ll elaborate on soon). You should definitely consider some non-negotiable, like the direction of the candles in relation to trend or the large gap. Just keep in mind that context trumps criteria.
Ultimately, it’s up to you to decide how seriously to take each guideline.
After all, the goal of candlestick pattern analysis is to interpret underlying price action (not just label patterns correctly).
To this end, you need to understand where they fit.
Where Meeting Lines Fit in the Chart Narrative
The markets are often characterized as a battle between the bulls and the bears.
Meeting lines patterns show that those trading with trend pressed their advantage on candle one (and between candles one and two) then lost the momentum completely by the end of candle two.
On the chart, it looks like a line in the sand.
The first day saw a powerful trending move. Once the market closed, this continued in a major way. Thrilled with a large gap, many trend-side traders looked to take profits. This led to a cascade of counter-trend action throughout the second day. By the final bell, price had reverted back to the close of the first day.
Over the coming days, the “neckline” by the two closes is likely to become a crucial decision zone. If those looking for reversal cand defend this price level, they have a better chance at making the trend change stick.
(This is only a hypothetical illustration, as a meeting lines pattern could represent a number of real-world scenarios.)
In the short-term, it amounts to an exchange of haymakers.
The question traders need to ask themselves is,
“Can the counter-trend players win the clash of wills required to sustain the reversal?”
To answer that question, you’ll need more than just 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 meeting lines patterns and apply your findings to your own trading style.
Now, you can test (and/or stretch) the criteria we mentioned earlier to identify the best trade setups. For instance, you may find that meeting lines made of two marubozu candles perform more reliably than those with long wicks. Or, you may find something else entirely.
This is the kind of technical analysis that brings the story in the charts into full focus.
How To Trade Meeting Lines Patterns
Reversal points are great places to enter or exit trades, especially when you catch them early enough.
Meeting lines candlestick patterns serve as easy-to-spot signs of potential reversal and may even lead to cycle-defining tops or bottoms. Generally, you can assign greater weight to multi-stick patterns than single candles because they give you more information over a longer duration.
However, there are a few things you should know about trading candlestick patterns.
First and foremost, hit rates for most of them hover around 50%. According to Bulkowski’s Encyclopedia of Candlestick Patterns, bullish meeting lines have a 56% hit rate while bearish meeting lines have a 49% hit rate. This is little better than (or even worse than) a coin flip.
In addition, candlestick patterns do not have standardized price targets or measured moves like chart patterns do. This can make it difficult to decide when to get out of your trade or how to manage your stop loss.
Moreover, failed reversal patterns often lead to continuation or consolidation. Therefore, you need additional points of confirmation to increase your odds of success.
Some such factors include:
- Volume – Reversals are often accompanied by elevated trading volume. For meeting lines patterns, you want to see a spike on the second candle (or just after).
- Price Formations – Reversal patterns that form on the right side of important price levels or trend lines are often more reliable. Always be aware of support and resistance!
- 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 a meeting lines reversal signal.
Even so, it would be difficult to form a successful trading strategy around any given candlestick pattern. There simply isn’t enough there to develop a strong edge. Even with a great understanding of trading math, order execution, market psychology, risk management, options, and automation, you’d still have a hard time.
In essence, meeting lines patterns are much better idea givers than trade makers.
Better yet, you’ll probably find more success building your strategy around other tools then using candlestick patterns as the final point of confirmation.
Other Candlestick Pattern Types
The meeting lines is but one of many candlestick patterns.
And while learning them all is not a prerequisite for successful trading, you’d certainly benefit from getting familiar with other candlestick pattern types.
They can be categorized in several ways.
The most straightforward way may be by the number of candlesticks (ie. 2-candlestick, 3-candlestick, 5-candlestick, etc.)
More helpful though, you can group them by price direction or signal type. That is, they can be bullish or bearish and/or imply reversal or continuation. Finally, you can multiply these designations together to separate them into bullish reversal, bearish reversal, bullish continuation, and bearish continuation categories.
On the other hand, you might just tackle them in alphabetical order:
- Abandoned Baby
- Breakaway
- Counterattack Lines
- Doji Star
- Engulfing
- Harami
- Harami Cross
- In Neck
- Kicking
- Ladder
- Last Engulfing
- Mat Hold
- Matching
- On Neck
- Separating Lines
- Star
- Stomach
- Tasuki Gap
- Three Inside
- Three Methods
- Three Outside
- Three-Line Strike
- Tri-Star
- Tweezer
- Window
Sure, there are quite a few. But don’t let that intimidate you.
It’s unnecessary to memorize the name and criteria of every single pattern. The key is to learn the principles of price action and technical analysis.
In fact, you’re free to forget all of their names and specifications as long as you can look at a group of candlesticks and understand what they are trying to tell you. It’s just that the more of them you learn about, the easier this will become.
So take the time to study at least a few more of them.
Takeaways
To review:
Meeting lines are a type of candlestick pattern that signal a potential reversal. While not a guarantee, their appearance may indicate that market conditions are changing. Thus, they 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 tool to your toolkit.
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.