Candlestick patterns help traders understand the price action of a stock at one glance. The basic candlestick patterns provide certain insights into the market trends. Hence, it is important to learn some advanced patterns that are very useful and reliable to help identify the price actions and trend reversals.Some important patterns are Morning and Evening Star patterns, Three White Soldiers pattern, and Three Black Crows pattern, among others.In these patterns, the trading signal is generated on the basis of three days’ trading action. Hence, to identify these patterns, a trader needs to look for specific formations consisting of three candlesticks. With the help of these candlestick formations a trader can determine how the stock price may behave, going forward.Some of these are reversal patterns. They signal the end of the current trend and the beginning of a new trend in the opposite direction.Here’s a look at the popular triple candlestick patterns:
Morning and Evening Star patterns
The Morning Star is a reversal pattern and usually occurs at the end of a trend. This pattern indicates a bottom out and a trend reversal to uptrend.
Identification
In the Morning star pattern, the first candle is a dark bearish candle in an existing downtrend. This is followed by a short candlestick with a small body, opening lower to form a star. This indicates indecision in the market. The third candle forms on the third day which closes above the midpoint of the first candle. This white body candle acts as a confirmation that a reversal is in place.On the contrary, an Evening Star, also a trend reversal pattern, indicates the end of an uptrend.In an Evening Star pattern, the first candlestick is a white bullish candle in an existing uptrend. This is followed by a small body candle, either bullish or bearish, on the second day, indicating indecision. The third candle closes well into the first day’s white candle or below its midpoint.
Three White Soldiers pattern
The Three White Soldiers pattern is a type of triple candlestick pattern that occurs when three long bullish candles follow a downtrend. This signals that a reversal has occurred. It is a bullish candlestick pattern, and is used to predict the reversal of the current downtrend.The Three White Soldiers pattern consists of three consecutive long bullish candlesticks. Each candle opens within the previous candle’s body and closes above the previous candle’s high. These candlesticks usually do not have very long shadows.This candlestick pattern suggests a strong change in market sentiment for a stock. A candle with small or no shadows suggests that the bulls have major control. These bulls have kept the prices at the top of the range for the session, and managed to close near the day’s high for three consecutive sessions.
Identification
In the Three White Soldiers pattern, the first candlestick is a reversal candle that ends a downtrend. It may also imply that the consolidation period followed by the downtrend is at an end.The second candle is bigger than the previous candlestick’s body and closes near its high. The second candle has a small wick or no upper wick at all.To complete the Three White Soldiers pattern, the last candlestick should be at least the same size as the second candle. This opens near the high of the previous candle and has a small shadow or no shadow at all.
Three Black Crows pattern
The Three Black Crows pattern is the opposite of the Three White Soldiers pattern. It is a bearish candle pattern and predicts the reversal of an uptrend. This pattern is formed when three long bearish candles follow an uptrend.The bearish candle pattern consists of three consecutive long candlesticks that open within the body or near the low of the previous candle. Each candlestick closes near the day’s low price. This indicates that the bears are in control and the bulls are considering closing their long positions, leading prices to fall further.
Identification
In a Three Black Crow pattern, the first candle is a bearish or a black candle that follows a strong uptrend. This indicates the beginning of a trend reversal.The body of the second candle is bigger than the first candle and closes at or very near its low. It has a small wick or no wick at all.The third candle is of the same size or larger than the second candle’s body. This too, has a very short shadow or no lower shadow at all.For the Three Black Crows pattern to be completed, the last candlestick should be at least the same size as the second candle and have a small shadow or no shadow at all.
