Morning and Evening Stars
Morning and evening stars are powerful three-candlestick trend reversal patterns. These patterns are particularly significant when they occur after a strong directional move, either up or down, as they often signal a potential shift in market momentum.
Morning Star
Definition: The morning star is a bullish reversal pattern that forms during a downtrend. It consists of three candles: the first is a large bearish candle, the second is a small-bodied candle (which can be bullish, bearish, or neutral), and the third is a large bullish candle that closes well above the midpoint of the first candle. This pattern indicates that the selling pressure is waning, and buyers are beginning to take control.
Psychology: The first candle represents strong selling pressure, which drives the price lower. The second candle, with its small body, shows indecision in the market, as neither buyers nor sellers are fully in control. The final bullish candle confirms that the tide has turned in favor of the buyers, suggesting a potential reversal in the trend. The key to this pattern is the confirmation provided by the third candle, which signals that buyers have gained the upper hand.
Example:
Figure: A morning star at the end of a downtrend.
Evening Star
Definition: The evening star is the bearish counterpart to the morning star, forming during an uptrend and signaling a reversal to the downside. It also consists of three candles: the first is a large bullish candle, the second is a small-bodied candle, and the third is a large bearish candle that closes well below the midpoint of the first candle.
Psychology: The first candle represents strong buying pressure, pushing prices higher. The second candle, with its small body, indicates indecision as the market’s upward momentum begins to wane. The third candle, a strong bearish one, confirms that sellers have taken control, and a reversal is likely underway. This pattern is particularly potent when it appears after a sustained uptrend, as it can signal a significant shift in market sentiment.
Example:
Figure: An evening star at the end of an uptrend.
Three White Soldiers and Three Black Crows
The three white (or green) soldiers and three black (or red) crows are among the most reliable trend reversal patterns in technical analysis. The location of these patterns within the broader market context is critical to their effectiveness.
Three White Soldiers
Definition: The three white (or green) soldiers pattern is a bullish reversal pattern consisting of three consecutive long bullish candles. Each candle opens within the body of the previous one and closes near or above the previous candle’s high, signaling a strong reversal from a downtrend.
Psychology: This pattern indicates that after a prolonged downtrend, buyers have taken control of the market. The consistent upward movement suggests that the bears are exhausted, and the bulls are likely to continue driving the market higher. The absence of long shadows on these candles reinforces the idea that buyers are dominant, with little resistance from sellers.
Example:
Figure: Three white (green) soldiers at the end of a downtrend.
Three Black Crows
Definition: The three black (or red) crows pattern is a bearish reversal pattern that is the mirror opposite of the three white soldiers. It consists of three consecutive long bearish candles, each opening within the body of the previous one and closing near or below the previous candle’s low, signaling a strong reversal from an uptrend.
Psychology: This pattern suggests that after a prolonged uptrend, sellers have seized control of the market. The consistent downward movement indicates that the bulls are exhausted, and the bears are likely to continue driving the market lower. Just like the three white soldiers, the lack of long shadows on these candles emphasizes the strength of the prevailing trend, with sellers firmly in command.
Example:
Figure: Three black (red) crows at the end of an uptrend.
Three Inside Up and Down
The three inside up and down patterns are reversal patterns that can serve as early indicators of a potential trend change. These patterns are most effective when they occur after a clear and well-established trend.
Three Inside Up
Definition: The three inside-up pattern is a bullish reversal pattern that occurs after a downtrend. It begins with a large bearish candle, followed by a smaller bullish candle that stays within the range of the first candle, and ends with a third bullish candle that closes above the high of the first candle.
Psychology: This pattern shows that after a period of selling pressure, buyers are stepping in and starting to take control. The second candle’s inability to extend the downtrend signals weakening seller momentum. The third candle’s strong close above the first candle’s high confirms that the buyers have regained dominance, and a reversal is likely.
Example:
Figure: Three inside up at the end of a downtrend.
Three Inside Down
Definition: The three inside-down pattern is a bearish reversal pattern that occurs after an uptrend. It starts with a large bullish candle, followed by a smaller bearish candle that stays within the range of the first candle, and ends with a third bearish candle that closes below the low of the first candle.
Psychology: This pattern indicates that after a period of buying pressure, sellers are beginning to take control. The second candle’s inability to continue the uptrend suggests that the buyers are losing momentum. The third candle’s strong close below the first candle’s low confirms that the sellers have regained dominance, and a reversal is likely.
Example:
Figure: Three inside down at the end of an uptrend.
Understanding and identifying these triple candlestick patterns can greatly enhance your ability to predict potential market reversals. While these patterns are powerful, it’s important to consider them within the broader context of market trends and to look for additional confirmation before making trading decisions. Repetition is key—study these patterns thoroughly until recognizing them becomes second nature. Your ability to spot these patterns in real-time can make a significant difference in your trading success.