BULLISH THREE STARS IN THE SOUTH
Definition
This pattern consists of three consecutive black candlesticks, each closing lower than the previous day and having higher lows, indicating a gradually weakening downtrend.
Recognition Criteria
1. The market is currently defined by a dominant downward trend.
2. On the first day, a black candlestick appears with almost no upper shadow and a long lower shadow.
3. The next day, another black candlestick forms, closing below the previous day’s close and opening within the range of the previous day’s body. However, it has a higher low.
4. On the final day, a small black Marubozu appears, also with a higher low.
Pattern Requirements and Flexibility
The first candlestick should be a normal or long black candlestick with a long lower shadow. The following black candlestick must open within the range of the previous day’s body, and close below the previous day’s close. The bodies of the three black candlesticks and their lower shadows should get shorter.
Trader’s Behavior
The Bullish Three Stars in the South pattern indicates a gradually weakening downtrend, characterized by diminishing daily price ranges and consecutively higher lows. Buying enthusiasm is evident from the long lower shadow on the first day. The second day opens higher, trades lower, but does not fall below the previous day's low, and closes off its low. On the third day, a small black Marubozu forms, engulfed by the previous day's range, causing uneasiness among shorts. The final day shows market indecision with minimal price movement, suggesting that shorts are now ready to cover positions if there is any upside movement. Overall, the pattern suggests that the market is slowly turning bullish.
Buy/Stop-Loss Levels
The confirmation level is defined as the midpoint of the last black candlestick body. For confirmation, prices should move above this level.
The stop-loss level is set at the lower of the last two lows. After a BUY signal, the stop-loss is triggered if prices decline instead of rising and either close below the stop-loss level or record two consecutive daily lows below it, without any bearish pattern being detected.