Matching Low

What Is a Matching Low?

A matching low is a two-candle bullish reversal pattern that shows up on candlestick charts. It happens after a downtrend and, in theory, signals a possible finish to the selling by means of two long down (black or red) candlesticks with matching closes. It is confirmed by a price move higher following the pattern.

In reality, the matching low more frequently acts as a continuation pattern to the downside.

Understanding the Matching Low Candlestick Pattern

The matching low pattern is a two-candle bullish reversal pattern with the following qualities:

• The market is trending lower.
• The principal candle has a long black (down) real body.
• The subsequent candle has a black real body that closes at about a similar price level as the close of the principal candle.
• The candles might have lower shadows however the matching closing prices are important. The lower shadows may likewise have a comparable low.

The theory behind the pattern is that the disappointment of the second candle to close below the main candle's close produces a support level for a bullish reversal. Bulls are probably going to endeavor a rally utilizing the support level as a springboard, making a recent fad higher.

Traders could search for a rebound in the price following the matching low pattern, while utilizing the prior day's close (or low) as a support level — or possibly a stop-loss point — for the position. For instance, on the off chance that the third candle moves over the high of the first or second candle, this could trigger an entry with a stop loss below the low of candles one and two. The third candle, in this case, is called the confirmation candle. It moves in the expected heading.

It's suggested that traders hang tight for a confirmation candle before acting, particularly with this pattern. Regularly it acts as a continuation pattern — around 61% of the time, as indicated by the Encylopedia of Candlestick Charts by Thomas Bulkowski. Subsequently, the price might drop down following the pattern, and a trader could likewise enter a short position in this case, with a stop loss over the first or second candle high.

Matching Low Trader Psychology

Assume the market is participated in an active downtrend, building bearish energy while bull confidence droops. The principal candle closes lower than the open, with a large real body, showing that sellers took control from the get-go in the session and kept up with control into the closing bell. This trend further increments bearish energy while keeping bulls on the defensive due to the lack of buying power. Nonetheless, the security gaps higher on the subsequent candle, venturing into the upper half of the main candle's real body. This price action shakes bear confidence while expanding bullish purpose.

Bears take control after the opening print of the subsequent candle, dropping the price back to the close of the main candle. Their inability to post a lower close demonstrates diminished selling power while laying out a support level at the closing ticks of the first and second candles. In any case, bull power stays feeble, deterring new bull positions into the closing bell.

This pattern is inclined to heading either path, with a slight edge for it being a continuation pattern rather than a reversal pattern. Accordingly, traders can hold back to see what the third and fourth candles (the next couple of candles after the pattern shows up) do. On the off chance that the price moves higher following the pattern, traders will search for a long entry. Assuming that the price moves below the pattern, traders will hope to exit long positions or sell short.

Illustration of How to Trade The Matching Low Candlestick Pattern

The Macy's Inc. (M) daily chart shows two matching low candlestick patterns. Model one outcomes in a small move higher once the price moves over the high of the two-candle pattern. It likewise triggered a false breakout below the pattern low on candle three.

The subsequent model occurred during a sharp decline. The price dipped under the pattern low on candle four signaling a downside breakout and expected short trade. The price continued lower for two additional sessions before skipping higher.

The Difference Between Matching Low and Three Stars in the South

Both of these candlestick patterns signal a likely base to the selling, however the patterns are structured in an unexpected way. With matching lows, two falling candles make comparative closes. With three stars in the south, the main candle is a long down candle, the subsequent candle is likewise a down candle, however neglects to make a lower low, and the third candle is smaller, has no lower shadow, and is inside the scope of the subsequent candle.

Limitations of the Matching Low Candlestick Pattern

The pattern functions admirably in that the price will in general move well following the pattern; nonetheless, which heading that move will be in is hazy. In reality, it acts as a continuation pattern more frequently than a reversal pattern. This problem can be eased by waiting for confirmation and trading in the breakout course following the pattern.

Candlestick patterns don't have profit targets. In this way, while trading the matching low pattern, it depends on the trader to decide when they will take profit.

The pattern isn't especially common, and that means opportunities to utilize a strategy in light of the pattern will be limited. It is suggested that traders use different methods of analysis, for example, price action, technical indicators, or larger chart patterns, to assist with approving matching low trade signals.

Highlights

• The pattern happens following a price decline and signals a potential base or that price has arrived at a support level.
• The matching low pattern is made by two down candlesticks with comparable or matching closing prices.
• In reality, the price could head either path following the pattern, and all the more frequently it proceeds to the downside.