The Three Stars In The South Pattern is an average 3 candle bullish reversal pattern occurring during a downtrend. The opposite signal pattern is the Advance Block pattern.
Three Stars In The South Japanese Candlestick PatternWe see three consecutive black candlesticks during a downtrend. The slow down of the trend is visually obvious.
The first candlestick is a long black body. The shadow indicates that some buying had presented itself.
The second candlestick is a smaller black candlestick with a lower shadow contained within the trade range of the first day. This indicates a deterioration of the selling.
The third day is a Marubozu within the trade range of the second day.
Rules:
The downward trend has been fairly consistent for a good period of time.
The first candlestick is a long black Opening Marubozu with a long lower shadow, similar to a Hammer.
The second candlestick is another Opening Marubozu, but smaller in body and lower shadow, with a low above the first day’s low.
The third candlestick should be a black Marubozu, no shadows, contained within the second day’s trading range.
Signal Strengtheners:
A bullish day following this pattern is good confirmation that the reversal is occurring. This confirmation may be a white candlestick, a large gap up or a higher close on the fourth day.
General Analysis:
The Three Stars in the South Pattern shows a weakening downtrend, which is indicated by less and less daily price movement and consecutively higher lows. After a down trend, the daily formations start indicating that the Bulls are becoming evident. Buying enthusiasm is reflected by the long lower shadow of the first day.
The second day indicates the same message on a smaller scale. It opens at a higher level, trades lower, but its low is not lower than the previous day’s low.
Day three brings movement to a slow process. A black Marubozu, which is engulfed by the previous day’s range, appears. Higher lows cause uneasiness among shorts. The bears should now be concerned about their positions. New lows are diminishing rapidly. This gives enough time for the short sellers to start covering their positions.
