Bullish Tri-Star Candlestick Pattern: Technical analysts use chart and candlestick patterns to judge stock prices and forecast future trends. Each pattern contains significant information about the market’s direction. By examining and understanding these patterns, analysts may make educated forecasts about future stock movements, allowing investors to make well-informed investment decisions.
Bullish Tri-Star Candlestick Pattern – Definition
A bullish tri-star candlestick pattern is a rare candlestick pattern that generally indicates a bullish reversal in the security. As the name suggests this candlestick pattern consists of three consecutive doji candles.
Bullish Tri-Star Candlestick Pattern – Formation
A few things must be fulfilled before a three-candlestick pattern can be considered a Bullish Tri-Star Candlestick Pattern and they are as follows:
- All three candles must be doji candles.
- The second doji candle must open with a gap down.
- The third doji candle must open with a gap up.
Bullish Tri-Star Candlestick Pattern – Psychology
Traders must ensure that the prior trend before the formation of the Bullish Tri-Star Candlestick pattern is a downtrend. Once this pattern is formed in a downtrend, the following are the guidelines to take a trade:
- ENTRY: When the price of the security goes above the high price of the third candle of the Bullish Tri-Star Candlestick pattern, traders can take a long position.
- TARGET: Traders can exit the trade when the price of the security reaches the immediate resistance zone. Once this level is reached, one can also book partial profits in the trade and hold on to the remaining position until the next resistance level.
- STOP LOSS: Traders can place the stop loss near the low price of this pattern.
Bullish Tri-Star Candlestick Pattern – Example
In the above one-day chart of RELIANCE INDS, we can observe the formation of the bullish tri-star candlestick pattern after a downtrend. As discussed above, the price of the stock saw a bullish movement after the formation of this pattern.
At the time of the formation of this pattern, traders could have taken a long position when the price of the stock started trading above the close price of the third doji candle which is Rs. 829.45, and the stop loss was at the low of this pattern which is Rs. 815.50.
Strengths Of The Bullish Tri-Star Candlestick Pattern
The Bullish Tri-Star Candlestick can form in any trend but the indication would have less probability of succeeding if it appears in an uptrend or sideways trend. Also, there are situations where the formation of this pattern will have a stronger indication with a higher probability of a bullish reversal.
- Formation after a long downtrend: The formation of this pattern after a significantly long downtrend will have a stronger bullish reversal indication as it shows that the selling pressure has come to exhaustion in the stock.
- Formation at a strong support zone: Support zones are created when the price of a stock has previously reacted to a particular price level or has risen after reaching that level more than once. A strong support zone is formed when the price has reacted to that level multiple times. Therefore, if this pattern is observed within that zone, it suggests that the price has reacted again and is unlikely to drop below that level.
- When RSI is in an oversold region: If the Relative Strength Index (RSI) is in the oversold region when this pattern forms, it suggests that the stock has been sold for a long period and is now available for a good price to buy. This can attract more potential buyers, leading to a higher probability of a bullish momentum
Limitations Of The Bullish Tri-Star Candlestick Pattern
No technical analysis is 100% accurate and there is always a chance of price moving against the indication given. The Bullish Tri-Star Candlestick pattern might occur due to there being a short pause in the selling pressure before continuing again. Thus it is important to combine this or any candlestick pattern with other technical analysis methods and place appropriate stop loss.
Next post :- Yes Bank’s turn around? From Struggle to Strength