In previous articles, we have covered candlesticks patterns that are made from a single candlestick and also two candlesticks, referred to as dual candlestick patterns. In this article, we are going to discuss candlestick patterns that have three candles in their formation.
The so-called triple candlestick patterns are also among excellent tools that can be in your technical analysis arsenal. As a forex trader, you can rely on these tools in order to get a reliable prediction or forecast about how prices are potentially going to move in the future.
With the dual candlestick patterns, we had a relationship between two candles that ultimately defined the interpretation of the pattern. Naturally, here we are going to look at the relationship that exists among three different candlesticks. So, here is a list of triple candlestick patterns, in no particular order.
Three White Soldiers
This triple candlestick pattern is a bullish reversal signal. This means that the usual place of formation for this pattern on the chart is when there is already a downtrend in the market. Also, this would be in the lower parts of a downtrend. When the bearish run is almost out of its fuel.
What does it look like? As the name suggests, the three white soldiers are three candles that are all bullish. This means their color is green, or in some charts white. When the color of a candle is white or green, i.e. when the candle is bullish that is when the closing price is higher than the opening price.
Another peculiarity of the three white soldiers is that each candle is standing higher than the previous one. This shape takes form such that the opening price of the next candle is almost equal to the closing price of the previous candle.
In this way we can see three green candles standing higher one after the other. With every candlestick pattern, there are confirmatory signs that you need to look for. First of all, we said this pattern is a bullish reversal, so it has to be spotted when a downtrend is indeed trending downward.
Plus, it is one of the strongest bullish reversal signals. But it can be even stronger if each candle is longer than the previous one. They can be close to each in height. But if these candles get taller as they register, then the signal is that much stronger.
Three Black Crows
This pattern is the exact opposite of the three white soldiers. In the case of three black crows we have three consecutive bearish or red candles. A bearish or red candle occurs when the closing price of the candle is lower than its opening price.
The three black crows pattern is a bearish reversal. In fact, it is perhaps the most potent bearish reversal signal. So if you see this pattern after an uptrend has been trending upward, you can pretty much rely on it and adjust your positions in the market accordingly.
The way it is formed, as we said, is by registering three bearish candles consecutively. But they should be down trending themselves. This means when the first bearish candle takes form, the second bearish candle should start from the closing price of the previous candle and close itself even lower than that. Naturally the third candle should also start from about the closing price of the second candle and itself close even further down.
In this way, we would have three red candles that are standing lower one after the other.
Please keep in mind that in order for this pattern to be strong and reliable, the candles’ bodies need to be larger as they go on. This means the second candle has to be bigger than the first one. And naturally, the third candle must be bigger than the second one.
Also remember that most of the price action should be covered by the body of the candle, and these candles should have no or little shadows.
Evening star is yet another reversal pattern. The reason it is important to know which type of pattern or signal you are dealing with is that you need to know when you should expect to spot the pattern. All reversal patterns, by and large, are expected to be detected at the end of a trend.
The evening star pattern is a bearish reversal signal. Therefore, it should be registered at the end of an uptrend. How is the evening star formed?
The first candle in this triple candlestick pattern is a long green candle. This is to be expected because there is already an uptrend in the market.
The second candle should be a very small candle, either green or red. This small bodied bearish or bullish candle can have medium sized wicks. This means that there is a lot of indecision among traders. So prices rally up and down. But the body is really small, so this means the opening and closing prices are close to each other.
The third candle, followed by the indecision of the second candle, should be a resounding, long red candle. This is the confirmation that the indecision of traders in the market has indeed tipped over to the bearish side.
The morning star is the exact opposite of the evening star. So it means that it is a bullish reversal pattern and is usually formed at the end of a downtrend.
It is also formed similar to the evening star, but of course upside down. Therefore, the first candle is a big red candle, due to the downtrend already in the market.
The second candle is the candle of uncertainty. So it has a really small body with medium sized wicks or shadows.
The third and last candle in the morning star pattern is the defining big green candle, after which we can expect to see prices reverse toward up.
Three Inside Up
This triple candle pattern is a bullish reversal. Naturally you would see this at the end of a downtrend. The formation of the candle begins with a long red candle. This is of course expected, because there is already a downtrend in the market.
After that, the second candle turns green, but it is small. Although in terms of size, it should reach up to at least the middle of the first candle.
The third candle is also bullish or green. It should start from the high of the previous, second, candle. And it should close much higher than the first candle.
In this way, there can be a signal that the downtrend is about to finish and that the market is about to fall into the hands of bulls.
Three Inside Down
The opposite pattern of three inside up is of course the three inside down. This is a bearish reversal market. So when there is a bullish trend in the market and prices are rallying upward, you might expect to find this pattern at the top of the uptrend.
The first candle in this pattern is a long green candle due to the uptrend.
The second and third candles are of course red candles. The second candle should close down and reach to about the middle of the first candle. The third candle should start from the low of the second candle and close much lower than the candle’s low.
The number of candlesticks in a pattern is an important notion. Why? Well, when there are more candles in a pattern, they can confirm each other and act complimentary to the interpretation of the pattern as a whole. For this reason, for instance, triple candlestick patterns that are reversal patterns are much more dependable.