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We see three consecutive black candlesticks during
a downtrend. These candlesticks show that each day is
consecutively weaker in a bearish sense and possibly
some buying is occurring. Daily small rallies keep the
market’s lows from reaching that of the first
day. These indications suggest that tide is turning
in a bullish direction.
Recognition Criteria:
1. Market is characterized by downtrend.
2. We see a long Black Opening Marubozu in the first day
characterized by a long lower shadow just like a Hammer.
3. Then we see a Black Opening Marubozu on the second
day similar to the first day however smaller in body with
a low above the first day’s low.
4. We finally see a small Black Marubozu on the third
day that lies within the second day’s trading range.
Explanation:
The Bullish Three Stars in the South Pattern shows
a slowly deteriorating downtrend, which is characterized
by less and less daily price movement and consecutively
higher lows. Buying enthusiasm is reflected by the long
lower shadow of the first day. The next day opens at
a higher level, trades lower, but its low is not lower
than the previous day's low. This second day also closes
off its low. Then we see a black Marubozu, which is
engulfed by the previous day's range on the third day.
Higher lows cause uneasiness among shorts. The last
day of the pattern reflects market indecision, with
hardly any price movement. Shorts are now ready to cover
positions if they see anything in the upside. Everything
points out that the tide is slowly turning toward the
bull side.
Important Factors:
A confirmation on fourth day is required to be sure
that the downtrend has reversed. This confirmation may
be in the form of a white candlestick, a large gap up
or a higher close on the fourth day.
Click on D for Daily and W for Weekly Samples
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