The Double High Lower Close (DBHLC) and Double Low Higher Close (DBLHC) Pattern is quite an unfamiliar pattern in the trading industry. However, price action traders always anticipate trading this pattern as it goes with pure logic. The name of the pattern could seem a little complicated; however, it is fairly simple to comprehend. The concept of support and resistance forms the foundation of this pattern. So, let’s get started by understanding what the DBHLC and DBLHC mean specifically to a price action trader.
What are Double High Lower Close and Double Low Higher Close Patterns?
Double High Lower Close
If we dissect the term into two parts as ‘double high’ and ‘lower close’, the meaning becomes quite clear. It means that two candles are having almost the same high, and the close of the second candle is lower than the first candle’s low.
The representation of a DBHLC pattern is shown below.
Double Low Higher Close
This is the inverse of the DBHLC pattern. In the DBLHC, both the candles have equal lows, and the close of the second candle is higher than the high of the first candle.
Below is an example figure of how a DBLHC candle looks.
Interpreting the DBHLC and DBLHC Patterns
Let us interpret the pattern with an example. Below is a DBLC candlestick pattern with its line representation on the right. Considering the line diagram, the market opens at ‘O’, goes a little lower, jumps back up making a high ‘H’ and closes at ‘C’. Moving forward, the second candle opens at the close of the first candle, attempts to go higher than the previous high, but fails and drops lower than the previous candle’s low.
Well, what can we make out from this? Let us understand it from both the buyer’s perspective as well as the seller’s perspective. The buyers looked pretty strong in the beginning but were unable to go higher than the previous high, in the second candle. Also, they could not even hold their low. On the other hand, from the seller’s perspective, the sellers had no presence in the first candle. However, when the second candle opened, the sellers did not allow the buyers to go past the recent high and also broke the level where the buyers began their move.
In technical terms, they breached the first candle’s low. Therefore, we can conclude that the market should drop any moment now.
How to read a DBLHC pattern?
There are many ways to read the DBLHC pattern. One of the ways to read this pattern is given as follows. Below is the chart of USD/CAD on the 4H timeframe. Analyzing the market from the left; the price initially drops, holds and then gradually goes up. Later, it drops down again, in fact, lower than the first low. Also, the buyers were unable to go higher than the previous high.
This clearly means that the market is in a downtrend, making lower lows and lower highs. Moving forward, the market makes another lower low, but this time does not make a lower high. Also, the next move down does even not make a lower low. This is an indication that the sellers are weakening. Now, all we want is a clue that the buyers are alive, to go long.
After two lower lows and one equal low, the market then makes a higher low. Moreover, the very next candle, the market breaks the recent high (orange line) and also forms the DBLHC pattern. Now, we can certainly say that the buyers are back in the market.
Price Action analysis of DBHLC
As mentioned, this pattern can be analyzed in several different states of the market. The previous example discussed on how to interpret the pattern for a market reversal. In this example, we shall be discussing how to interpret the pattern when the market is ranging.
From the below chart, we can evidently see that the market is ranging. The market fell twice when the market reached the resistance level. Therefore, there is a probability that it will drop again. As the price pullback to the resistance, we can see that a DBHLC pattern appears right at the top of the range (resistance). Here, many traders hit the sell.
But, a price action trader waits for another confirmation which assures the legitimacy of the sellers. Here, in this example, we can see that, right after the formation of the first DBHLC pattern, another DBHLC pattern occurs following the first DBHLC. This is when the price action trader takes action and goes short.
What is more significant: the preceding story or the pattern?
Well, to any price action trader, the overall story is the most significant element when it comes to analyzing the charts. Reading the pattern alone can lead to inconsistency in trading. So, understanding the story is vital.
Consider the below chart. We can see that the overall trend of the market is bullish. So, we wait for a pullback before going long. The pullback comes down until the S&R line and starts to hold. In this holding area, a DBHLC pattern appears. Well, the market was supposed to down from here, but it didn’t. The reason is simple. It is because you are selling in the face of the big buyers. In other words, you are selling at the buyer’s S&R area. Since here the buyers are stronger than the sellers in that area, the selling action doesn’t work in your favour.
Some pattern traders, trade solely based on the design of the pattern, which is quite dangerous. The location where the pattern occurs matters a lot as well.
For example, if a DBHLC appears at the bottom of the range, the pattern is less likely to work because it is the area of the buyers. Therefore, patterns must always be used in conjunction with other technical analysis tools to obtain fruitful results.