What is a 'Stick Sandwich'

A stick sandwich is a technical trading pattern in which three candlesticks form what appears to be a sandwich on a trader's screen. Stick sandwiches will have the middle candlestick oppositely colored of the candlesticks on either side of it, both of which will have a larger trading range than the middle candlestick. Stick sandwich patterns can occur in both bearish and bullish indications.

BREAKING DOWN 'Stick Sandwich'

In a bearish stick sandwich, the outside candlesticks will be long green candlesticks, while the inside candlestick will be shorter and red, and will be completely engulfed by the outside sticks. A bullish stick sandwich will look pretty much the same but with the opposite color and trading patterns as the bearish sandwich. Traders typically will take cues from the closing prices of the third candlestick when deciding to take bullish or bearish positions.

Although recognizing a stick sandwich pattern is not overly difficult, because they can present themselves during a bull and bear market, traders must be careful to take note of the colors involved. Basic criteria include accounting for the color of candlesticks on both sides, as well as the color of the candlestick sandwiched in the middle. After this pattern is recognized, traders consider a bearish sandwich to run green-red-green, and a bullish sandwich to run red-green-red.

The theoretical rationale behind the stick sandwich approach is that when the market is testing new lows, it will produce a red day. The following day will unexpectedly open higher and will trend higher all day, closing at or near its high. This movement hints at the reversal of a downtrend, and most short traders will proceed carefully. Then on the next day, prices open even higher, which accelerates shorts covering initially. However, prices then drift lower to close at the same level as two days prior. Savvy traders will take note of the support price implied by the two same level closes.

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