Spotting certain patterns on a candlestick chart is a fundamental part of trading cryptocurrencies. A stick sandwich is one of those patterns which can appear in both bullish and bearish situations. In either case, the formation suggests a reversal in the trend which has been playing out before its appearance. To fully understand how to recognise a stick sandwich and the trading psychology behind it, it’s important that you first know how to read a candlestick chart.
What is a Stick Sandwich?
A stick sandwich is a candlestick formation made up of three candles which resembles a sandwich. The outer candles will be the same colour and the middle candle will be the opposite colour. In a bullish situation, the pattern will follow a downward trend and the first candle will be red, testing new lows. This will be followed by a green candle which is shorter than the first. This candle will often open above the close of the first candle and close near its high. Finally, another red candle will form on the third day which is more or less the length of the first candle but engulfs the middle candle. Notice that the second candle in this pattern is similar to a bullish harami candle but slightly longer and that the third candle is the same as a bearish engulfing candle. This is why it’s important to take caution when it comes to making trading decisions on these patterns.
A bearish variation of this pattern is the opposite in that it follows an upward trend and the colours of the formation are reversed. The first candle is green and tests new highs. This is followed by a gap down and a red candle with relatively short wicks. The third candle engulfs the second and is green, which could trick new traders into thinking that the upward trend will continue. As is true with a bullish stick sandwich, other notable candlestick patterns can look very similar so it’s worth using caution when making trade decisions based on a stick sandwich.
How to Trade a Stick Sandwich
It’s always worth proceeding with caution when a long candle appears as it can suggest one of several different patterns. In a bearish scenario, experienced traders who are shorting the market would probably avoid placing any new trades at the appearance of the second candle in the formation. Of course, they would also most likely be using one or more of the various technical tools which measure market momentum using moving averages. Learning to get a good idea of the likely size of a coming move can really help to gauge whether it’s worth risking the trade of not.
Always remember to try to train yourself not to trade with emotion. You shouldn’t jump into a trade for fear of missing out. All the popular candlestick patterns are easy to spot with hindsight but in the moment, it’s easy to make rash decisions if you’re not in the correct headspace for trading.
Candlestick patterns capture market movements in a clear, concise way but it’s easy to get caught up in basing trade and investment decisions on a single signal. Remember to look at the same movement on different timeframes as this can sometimes give a totally different representation of what is happening. A “sure thing” pattern on the hourly may look insignificant when viewed on the daily. Using this approach along with other technical indicators such as the RSI and MACD can greatly improve your success rate as a trader.