Topic: Tri-Star
Type: two-way
Trend direction: Reversal
Financial markets are complex and volatile. One of the
methods we use to make informed decisions in this environment is candlestick
analysis. Japanese candlesticks, an indispensable part of technical analysis,
play a pivotal role in understanding market sentiment and price movements. In this
article, we will focus on one of the intricacies of Japanese candlesticks, the
Tri-Star pattern. The Tri-Star candlestick pattern is a triple candlestick
formation that can signal a reversal of a trend, and it can occur in both
bullish and bearish trends. There are two types:
- Bullish Tri-Star
- Bearish Tri-Star
The Tri-Star candlestick formation is one of the formations
used in technical analysis. It is a pattern that is generally thought to
indicate a trend reversal in the market.
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| Bullish and Bearish Tri-Star Candle Pattern |
Bullish Tri-Star
Definition: The Bullish Tri-Star is a type of pattern that consists of three consecutive candles on a price chart. This pattern can often indicate the end of a downtrend or the beginning of an uptrend. The Bullish Tri-Star pattern is formed as follows:
- First candlestick: Following a downtrend, a doji candlestick forms. While the downtrend continues, a star-shaped candlestick emerges. This candlestick typically has a small body and upper and lower shadows.
- Second candlestick: The second candlestick forms more like another doji candlestick. It usually moves within the opening and closing range of the previous candlestick and often has a smaller body.
- Third candlestick: The final candlestick forms another star-shaped candlestick. The price typically moves within the range of the previous two candles but closes with upward momentum this time. This candlestick also tends to have a small body and upper and lower shadows.
The Bullish Tri-Star formation typically indicates that the
downtrend is weakening and could signal a reversal. The colors of the candles
that form the pattern are not important and are often dojis.
Trade Decision: The Bullish Tri-Star candlestick pattern is considered a strong reversal signal near the end of a downtrend, indicating that buyers are ready to enter the market. It's important to consider the timeframe in which the pattern forms when trading. A Bullish Tri-Star seen on daily charts is a stronger signal than one seen on hourly charts.
Entry: After the third doji candle is formed, we can
enter the trade when the price starts to move in the opposite direction of the
previous trend. However, it is important to check the compatibility with other
technical indicators when determining the entry point.
Stop-Loss: A stop-loss level is set below the Bullish
Tri-Star pattern (such as the lowest level of the three candles or the support level before the pattern formation).
Target: Target levels can be determined using
technical analysis tools such as resistance levels, previous highs, or
Fibonacci levels.
Please see the following example of a trade with a Bullish
Tri-Star candlestick pattern on the daily chart of the Canadian Dollar /
Japanese Yen:
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| Bullish Tri-Star Pattern on the CAD/JPY daily chart |
Remember, the Bullish Tri-Star pattern can signal a trend
change in the market, but it is not a guarantee. It should always be used in
conjunction with other technical analysis tools, taking into account these
factors.
Bearish Tri-Star
Definition: The Bearish Tri-Star is a three-candlestick pattern that forms on a price chart. This pattern can often indicate the end of an uptrend or the beginning of a downtrend. The Bearish Tri-Star pattern structure is as follows:
- First candlestick: Following an uptrend, a doji candlestick forms. While the uptrend continues, a star-shaped candlestick emerges. This candlestick typically has a small body and upper and lower shadows.
- Second candlestick: The second candlestick forms as another type of doji candlestick. It moves within the opening and closing range of the previous day. It usually has a smaller body and moves within a similar range to the previous candlestick.
- Final candlestick: The third candlestick forms another star-shaped candlestick. However, this time it shows a downward breakout. The price typically moves within the range of the previous two candles but closes with downward momentum this time. This candlestick also trends to have a small body and upper and lower shadows.
The Bearish Tri-Star pattern is a bearish reversal pattern
that usually indicates a weakening uptrend and may signal a trend reversal. The
colors of the candles that form the pattern are not important, but they are
typically dojis and resemble a star.
Trade Decision: Bearish Tri-Star candlestick pattern is a triple candlestick formation that mostly appears near the end of an uptrend, signaling the emergence of bears taking control of the market. The timeframe in which the pattern forms is important when trading. A Bearish Tri-Star seen on daily charts is a stronger signal than one seen on hourly charts.
Entry: After the third doji candle of the Tri-Star
has been formed, we can enter when the price begins to move in the direction
opposite to the previous trend. However, when determining the entry point, we
should check whether volume analysis or other indicators support this decline.
Stop-Loss: A stop-loss level is determined above the
Bearish Tri-Star pattern (such as the highest level of all three candles or the
resistance level before the pattern formation).
Target: It is important to determine target levels to
predict how far the decline can continue. These targets can generally be
determined using technical analysis tools such as risk/reward ratios, support levels, previous lows, or Fibonacci levels.
Here is an example of a trade with a Bearish Tri-Star
candlestick pattern on the daily chart of the Euro / US Dollar:
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| Bearish Tri-Star Pattern on the EUR/USD daily chart |
Remember, the Bearish Tri-Star pattern is considered a signal for a change in trend in the markets. However, it's important to note that this formation alone doesn't guarantee a trend reversal. Therefore, it's recommended to use it in conjunction with other technical analysis tools to increase its accuracy and rely on stronger foundations when making decisions.