et’s look at the popular triple Japanese candlestick patterns and see what they appearance mean for the market.
Evening and Morning Stars
The Morning Star and the Evening Star are triple candlestick patterns that you can usually find at the end of a trend.
The Morning star is a reversal pattern to the upside that can be found at the end of a downtrend. The following chart shows an example of a morning star pattern:
- The first candlestick is bearish.
- The second candlestick has a small body. It does not matter if the second body is bullish or bearish (although a bullish body with a small or no upper wick indicates more bullish power).
- The small body serves as an indicator that the bears are losing their capacity to drive the market lower. It is also possible for the second candlestick to have no body (a doji).
- The third body is bullish that closes within the first candlestick, preferably beyond the halfway point of the first candlestick. This shows that the bulls are gaining control.
The Evening Star candlestick formation
The evening star is the bearish counterpart of the morning star pattern. The evening star is a reversal pattern and appears after an uptrend. It can be recognised by three characteristics:
- The first candlestick has a strong bullish body.
- The second candlestick has a small body. It can be bullish or bearish. It is also possible for the second candlestick to have no body (a doji).
- The third candlestick has a strong bearish body and closes within the body of the first candlestick, preferably beyond the halfway point of the first candlestick in the pattern.
Three White Soldiers
The three white soldiers chart pattern consists of 3 consecutive bullish candlesticks that have the following characteristics:
- Each candlestick closes higher than the one before which means that the bulls are driving prices up aggressively
- The second and the third candlesticks open within the body of the candlesticks preceding them.
- Ideally, each candlestick should have no upper shadow at all, which indicates that the bulls are able to keep prices up at just around the high of that particular period or timeframe.
- The last candlestick should be at least the same size as the second candle and have a small or no shadow.
Usually, traders who are short on security look to exit and traders who are waiting to take up a bullish position see the three white soldiers as an entry opportunity.
The Three Black Crows
This candlestick pattern is just the opposite of the Three White Soldiers.
If this model appears after a long upward trend or in the area of high price limits, it can be perceived as a signal of falling prices. The closing prices for the three candles must be at the level of the minimum prices for the session or not far from them.
It is formed by three red (or black) candlesticks in a row where each candle opening is lower than the previous bars open.
They follow a strong UPTREND, indicating that a reversal is in the works.
Here is a list of the conditions that must be met for the pattern to form:
- There must be three negative candlesticks
- All three should close in the lower fourth of the range.
- The upper wicks should not be very tall
- The second candle’s body should be bigger than the first candle and should close at or very near its low.
Three Inside Up and Down
The three inside UP pattern is similar to the morning star triple candlestick pattern – it indicates a potential trend reversal found at the end of a downtrend.
- The first candlestick is long and bearish, indicating that the market is still in a downtrend.
- The second candlestick is bullish and should ideally close at the halfway mark of the first candlestick.
- The third candlestick is also bullish and closes beyond the open of the first candlestick, ideally above the high of the second candle.
Three Inside DOWN pattern
The three inside down candlestick pattern is the opposite of the three inside up pattern and indicates a trend reversal found at the end of an uptrend.
As it follows:
- The first candlestick is long and bullish, indicating that the market is still in an uptrend.
- The second candlestick is bearish and should ideally close at the halfway mark of the first candlestick.
- The third candlestick is also bearish and closes beyond the open of the first candlestick, ideally below the low of the second candle.
A reversal pattern signal is stronger if it happens after a steep trend because the markets can rarely sustain a rapid price movement; a correction can usually be expected.
If the second candlestick does not reach the halfway point of the first candlestick, but the third still closes beyond the open or the low of the first candle, it may be considered as a valid three inside down pattern.