Tag: Triple Candlesticks

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Forex Course

57. Trading Triple Candlestick Patterns – Part 2 (Reversal)

Introduction

Introduction

Introduction

We have discussed some of the major triple candlestick continuous patterns in the previous articles. In this lesson, let’s talk about the triple candlestick reversal patterns. Morning Star and Three Inside Up patterns are very well known as they provide some of the most profitable signals. Let’s get right into the topic.

Morning Star Candlestick Pattern

Morning Star is a bullish candlestick pattern consisting of three candles and is interpreted as a bull force. The pattern is formed following a downtrend and indicates the start of an uptrend, which is a complete reversal. After an occurrence of the Morning Star, traders seek reversal confirmation through additional technical indicators. The RSI is one such indicator which tells that the market has gone into an oversold condition and that a reversal can happen anytime.

Below is how a Morning Star Pattern looks like on a price chart

Criteria for the Morning Star pattern

  1. The first candle is a long bearish candle with little or no wicks.
  2. The second candle is a smaller bullish or bearish candle that captures the indecision state of the market, where the sellers start to lose control.
  3. The third and last candle is a long bullish candle that confirms the reversal and marks a new uptrend.

A trader must lookout for a bullish position in the Forex pair once they identify the Morning Star pattern on the charts. Another important factor for traders to consider is to pair this pattern with a volume indicator for additional confirmation.

Three Inside Up Candlestick Pattern

The Three Inside Up is also a triple candlestick reversal pattern. This pattern indicates the signs of the current trend losing momentum, and warns the market movement in the opposite direction. It is a bullish pattern that is composed of large bearish candle, a smaller candle contained within the previous candle, and then a bullish candle that closes above the second candle.

Below is the picture of how the Three Inside Up pattern would appear on a chart.

Criteria for the pattern

  1. The market should be in a downtrend with a large bearish first candle.
  2. The second candle should open and close within the real body of the first candle, which shows that sellers have stopped selling further.
  3. The third candle is a bullish candle that closes above the second candle, trapping all the short-sellers and attracting the bulls.

Traders must take long positions at the end of the third candle or on the following green candle, which provides additional confirmation. This pattern is not always reliable when used stand-alone. So there are chances that the trend could reverse once again quickly. So risk management should be in place before taking any trades. A stop-loss must be placed below the second candle, and it depends on how much risk the trader is willing to take.

Conclusion

The opposite of the Morning Star candlestick pattern is the Evening star. Even this is a reversal pattern, but it signals a reversal of an uptrend into a downtrend. Likewise, the opposite of the Three Inside Up pattern is the Three Inside Down pattern, which reverses an uptrend. Learn about more triple candlestick patterns and how to trade them. The more you research, the better trader you will be. Cheers.

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Categories
Forex Course

56. Learning The Triple Candlestick Patterns – Part 1 (Continuous)

Introduction

Introduction

Introduction

After acquiring a fair bit of knowledge about Single and Double candlesticks patterns, let’s now proceed and learn the Triple Candlestick Patterns. A Triple Candlestick Pattern, as the name clearly suggests, is formed by three candles. In the next couple of articles, we discuss two Continuation patterns and two Reversal patterns to understand how these patterns are formed. Also, most importantly, we will be learning how to trade these patterns as well. So in this article, we will be discussing the basic & well-known Continuous Triple Candlestick Patterns – Three White Soldiers and Falling Three Methods.

Three White Soldiers Candlestick Pattern

Three White Soldiers is a bullish triple candlestick pattern that predicts the reversal of the short term downtrend. The reversal of this short term trend leads to the continuation of the long term trend, and hence this pattern is classified as a continuation Pattern. This pattern consists of three long-bodied candles that open within the previous candle’s body and close above the previous candle’s high.

Below is how the Three White Soldiers candlestick pattern looks on the price chart

Criteria for the pattern

  1. The second and third candles should open within the body of the previous candle
  2. All three candles in the pattern should not have very long shadows.
  3. The continuation pattern is confirmed by other technical indicators such as the RSI and EMA.

Three White Soldiers pattern is used by traders for both entry and exit. Traders, who were short in the currency pair will look for exit and traders who were following the long term uptrend take a bullish position and enter the market.

Falling Three Methods

The Falling Three Methods is a major trend continuation pattern and is sometimes referred to as five candle patterns because of the confirmation candles at the first and fifth positions. These two long candles confirm the trend and its continuation. The sole of this pattern is the three counter-trend candlesticks in the middle. This pattern should never be considered as a reversal pattern; it is a clear trend continuation pattern.

Below is an image of how the pattern looks on the price chart

Criteria for the pattern

  1. The Falling Three Methods is a bearish continuation pattern with two long candlesticks in the direction of the main trend and three counter-trend candles in the middle of the two big bearish candles.
  2. The series of small-bodied candles should be of the same color. However, a bearish Doji as the third candle can also be considered.

This pattern is used by traders to initiate new short positions or add to an existing one. A trade is taken only after the fifth candle, which confirms that the trend is going to continue. There are also traders who use the 10-day moving average to confirm that the market is in a downtrend. While trading this pattern, one needs to make sure that this pattern is not at the key support level.

Conclusion

These are two famous triple candlestick trend continuation patterns. Make sure not to use these patterns stand-alone. They must be paired with other credible technical tools like indicators or chart patterns to confirm the authenticity of signals they generate. In the upcoming lesson, let’s look at some of the Reversal Triple Candlestick Patterns. Cheers!

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