In the previous lesson, we learned the two types of candlestick patterns in the forex chart – the single and dual candlestick patterns. Let's review:
Candlestick patterns are categorized depending on the number of significant candles to indicate the signal.
Single candlestick patterns are easy to spot and more common because they require only one candlestick to form.
Dual candlestick patterns are less common but still easy to spot. These patterns provide a more accurate signal than singles.
What's next to these? The triple candlestick patterns! These candles are considered rare because of their complex formation. Remember, the more candles, the better the signal is!
As its name suggests, a triple candlestick pattern comprises three candles. Spotting a triple candlestick pattern is considered rare because of the complex pattern formation. How complex?
It has to form three candles with specific colors, wick extension, and body length – subsequently.
Like the other candlestick patterns, triples provide a visual and graphical representation of the market's historical data. It suggests that the buyers and sellers are likely to act upon these data and drive the market.
Remember, market patterns can also provide false signals like any other technical indicator. Trading the patterns requires multi-indicator analysis to ensure the accuracy of the signal. Additionally, you can ask the community to confirm or supplement your analysis.
As you already know, a triple candlestick pattern must create three candles for it to form. Here are the three candles and what they tell you about the market:
Again, these patterns must form subsequently.
Say the first candle forms. After that period, the market also creates the second candle of the pattern. However, the following candle doesn't look like the supposed third candle of the pattern.
When this happens, the pattern is invalid because the third candle failed to manifest. You might be looking at a dual candlestick pattern – or it could be a random set of candlesticks.
Read more: TradersUnited - 4 Different Dual Candlestick Patterns
The formation of a morning star candlestick is a three-candle pattern that forms at the bottom of an extended downtrend.
When the bearish market established this pattern, it indicated that its selling pressure was running its course and that the bulls were taking over the market.
Ultimately, it signals that the price will reverse to bullish.
Here are the three candles that you must spot to confirm the pattern formation:
Remember, the second candle can be red or green. However, a green candle provides a more solid bullish signal than a red.
The evening star candlestick is a three-candle pattern that forms at the peak of an extended and defined uptrend. This pattern formation signals that the bullish market will reverse to bearish.
This is the opposite of the morning star candlestick pattern.
What happens to the market during this pattern formation is the intervention of the bears amidst the ongoing buying pressure. This intervention puts immense selling pressure on the market, which then results in the buying pressure to run its course.
The star (second candle) is an indication of the weakening bullish market (first candle). Once the market forms a third candle that's bearish, it confirms that the price direction will reverse.
Both rising three and falling three signal continuation after a quick market retracement. Oftentimes, rising three and falling three candles are considered five-candle continuation patterns because they also analyze the three's preceding and following candles.
Here's how the two differ:
A rising three pattern forms at the peak of a defined uptrend. It creates three candles with lower highs and lower lows.
The formation of the rising three candles indicates that the sellers are trying to change the bullish movement of the price.
However, the market will create a decisive or confirmation candle after the rising three. This candle shows that the buyers have reclaimed their control over the market and will push the price higher.
On the flip side, the falling three candlestick pattern is found at the bottom of an extended bearish market. It's the counterpart of the rising three candlestick pattern.
During this pattern formation, the market will create three bullish candles with higher highs` and higher lows. This represents the effort of the bulls to reverse the bearish price direction.
However, the continuation trend is signaled by the decisive candle that forms right after the falling trees. Essentially, the market forms a long bearish candle, cutting short the market retracement caused by the bulls.
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