Bullish Carrier Pigeon Definition


What is the bullish carrier pigeon?

The bullish carrier pigeon is a candle pattern in which a large candle is followed by a smaller candle with a body located within the range of the body of the larger candle. Both candles in the pattern should be black or filled, indicating that the closing price was lower than the opening price.

This pattern may indicate that there is a weakening of the current downtrend, increasing the probability of an upside reversal.

Key takeaways

  • A bullish carrier pigeon is a bullish reversal pattern, although it can also be a bearish continuation pattern.
  • This candlestick pattern occurs during downtrends or during pullbacks within an uptrend.
  • It is made up of a large real body followed by a smaller real body, and both candles are either black (full) or red, indicating that the close is below the open.
  • Bullish homing pigeon patterns do not provide profit targets and a stop loss is usually placed below the bottom of the pattern after a bullish move is confirmed.

Understanding the bullish carrier pigeon

Bullish homing pigeons are bullish reversal patterns, although some research has suggested that it is a more accurate bearish continuation pattern. This is because prices do not move in a straight line. During a downtrend, the price goes down, then stops or moves back, and then goes down again. The bullish carrier pigeon could just be a pause before the price continues lower.

When used to predict a bullish reversal, traders watch the pattern occur during a downtrend that is weakening or approaching a support level. At this point, they may consider exiting short positions or entering long positions. The pattern is less significant as a bullish reversal when it occurs in rough market conditions.

Image by Julie Bang © Investopedia 2019

This candlestick pattern is similar to an internal day, where the entire price range of a candle falls within the price range of a previous day. Both patterns are used in the same way. The difference is that bullish racing pigeons only look at the opening and closing price rather than the entire daily range.

Carrier pigeon bullish confirmation

Whether using the pattern as a reversal or continuation signal, many traders wait for the next candle to confirm the direction. If the price moves above the open of the first or second candle, and especially if it closes there, the bullish push provides evidence that a bullish reversal is taking place. If the next candle after the pattern sees the price fall, and especially if it closes below the close of the first or second candle, that sell indicates that the price is more likely to continue falling.

As with most candlestick patterns, bullish carrier pigeons perform best when used in conjunction with other technical indicators or chart patterns. These chart patterns can serve as confirmation of a bullish reversal. For example, if the price has been moving, a bullish carrier pigeon can be a useful pattern to watch for nearby support. Both the range and the carrier pigeon pattern indicate that the price could lift support.

The pattern is also useful for signaling the end of a pullback during an uptrend. The pullback is a short-term price drop within the general uptrend. If a bullish carrier pigeon occurs during a pullback and is then followed by an upward price movement, that could indicate that the pullback has ended and the upward price trajectory continues.

Stop Loss and price targets

After the pattern occurs, if the price rises, this indicates a bullish reversal. A trader could enter a long position and place a stop loss below the low of the pattern. Alternatively, they could place it below the low of the second candle, which will often be higher than the first candle (but not always).

If a trader decides to use the pattern to signal the continuation of a downtrend, he will wait for the price to decline after the pattern forms. They could then enter a short position with a stop loss above the high of the pattern. Alternatively, they could place the stop loss above the high of the second candle.

The bullish carrier pigeon, like most candlestick patterns, does not provide a price target. The price may start a new full-blown trend after the pattern, or the price may just barely move. A trader could use a target price based on a defined risk / reward, a measured move, or could use a trailing stop.

Bullish Carrier Pigeon Example

A bullish homing pigeon candlestick pattern appeared on Facebook Inc. stocks. The stock was up but then entered a retracement phase. The price moved lower and then a bullish carrier pigeon pattern emerged.

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The pattern was followed by a higher gap and a sharp rise the next day. This sharp rise following the pattern helped confirm that the pullback was over. Due to the higher gap, this trade would have had a large stop loss if it had been placed below the low of the pattern. For some traders, this may have voided the trade. Others may have found another place to put the stop loss.

The pattern does not provide a profit target and there are no guarantees of how far the price will execute after the pattern occurs. In this case, the price rose for three days after the confirmation candle before declining again.

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Mark Holland

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