Learn the two-candle Separating Lines pattern, how to identify and trade reversals with clear entry rules and common mistakes.
Mark · Trader & Founder, Social Forex
Definition
The Separating Lines pattern is a two-candle reversal signal that appears at the end of a trend, indicating a shift in control between buyers and sellers.
Bullish Separating Lines: Occurs in a downtrend. The first candle is a long black (bearish) candle. The second candle is a long white (bullish) candle that opens exactly at the close of the first candle (no gap) and closes higher, separating from the prior downtrend.
Bearish Separating Lines: Occurs in an uptrend. The first candle is a long white (bullish) candle. The second candle is a long black (bearish) candle that opens exactly at the close of the first candle and closes lower.
Candle Shape
The first candle has a long real body, showing dominance of the current trend. The second candle opens at the previous close, creating a perfect horizontal line – the “separating line”. Its body is also long but opposite in color, closing far from the open, indicating a strong shift.
How to Identify
Clear prior trend (downtrend for bullish, uptrend for bearish).
Candle 1: long real body, minimal shadows (body at least 3x shadow length).
Candle 2: opens precisely at the close of candle 1, no gap.
Candle 2: long opposite-colored body, closes far from open (preferably beyond the body of candle 1).
Volume on candle 2 above average (confirms strength).
How to Trade
Bullish Separating Lines:
Entry: Buy at the close of the second candle or wait for a slight pullback to the open level (separating line).
Stop-loss: Place below the low of the second candle (or below the pattern's low).
Target: Measure the pattern's height (lowest low of candle 1 to highest high of candle 2) and use 1-2x that range, or apply Fibonacci extension.
Bearish Separating Lines:
Entry: Sell at the close of the second candle or wait for a pullback to the open level.
Stop-loss: Above the high of the second candle.
Target: Same logic as bullish.
Real Example: Suppose EUR/USD is in a downtrend. A long black candle appears (closing at 1.1000). The next candle opens at 1.1000 (no gap) and closes at 1.1050, long white body, with rising volume. This is a buy signal. Place stop below the pattern's low (candle 1 low at 1.0950). Target 1.1100 (50 pips extension).
Common Mistakes
Confusing with Inside Bar or Harami – Separating Lines require the second candle to open exactly at the previous close.
Trading without a clear prior trend or in a sideways market – weak signal.
Stop too tight (just below the body) – easily hit.
Ignoring volume – low volume suggests high failure rate.
Content is for reference only, not investment advice. Forex trading carries high risk.
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