Unique Three River Candlestick Pattern

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  • 20 Dec 2023
Unique Three River Candlestick Pattern

Key Highlights

  • A unique three-river pattern is made up of 3 candlesticks in a single sequence: a long downward real body, a hammer that cuts new low, and a third candle with just an upward real body that stays within the scope of the hammer.
  • In general, this pattern suggests a bullish reversal of the trend, but the price can move in either direction after it occurs.
  • The direction of a confirmation candle, or fourth candle, is typically used by traders to indicate which way the price is expected to go in response to the pattern.

Three candlesticks in a specific sequence constitute a unique Three River candlestick pattern. Usually, the series consists of a long downward real body, a hammer making a new low, and the last candle has a slight upward real body that stays within the hammer's range.

This often means a bullish reversal, but this is very much dependent upon price movement after the pattern has been formed. In order to validate the direction of price in accordance with this pattern, four candles shall be used. It is considered to be a bullish reversal when prices rise after the pattern, but when prices fall, it is considered to be a bearish continuation pattern.

In order to be considered as a unique Three River candlestick pattern, the following criteria must be met:

  1. There's a downward trend in the market. The first candle of the pattern closes much lower than the opening price, i.e., it has a bearish, long, real body. The long real body indicates that bears are controlling the current downward trend.

  2. A second body has formed a hammer with a lower shadow and records the latest low. The hammer suggests that after the decline, the bulls are getting stronger.

  3. A little above the opening price, the third candle closes. To put it another way, it's got a short white body that's below the real body of the second candle.

  4. The third candle must not be higher or lower than the second candle.

This pattern indicates a bullish reversal of the current downward trend. However, several instances lead to the continuation of the bearish trend. In view of this exceptional signal, traders should consider a candlestick chart with some context or string indicator to indicate clearly what direction the potential price movement is likely to take.

Given their specific characteristics, it is essential to understand the psychology of the three unique river patterns. Some traders use variations of a pattern in order to keep their psychology as pure as possible. For example, the second candle turned out to be a long-walking Doji instead of a hammer. The third candle is moving a bit down from the top rather than up. The psychology behind trade, in general, remains unchanged despite these differences.

Regarding the distinct three-river pattern, the fourth candle in the sequence offers validation. A higher price on the confirmation candles indicates to traders to enter a long position by proving that the pattern is a bullish reversal. Traders can set a stop loss below the second candle's low.

It is expected that prices will continue to fall, instead of a bullish reversal signal, if the fourth candle is seen to be pulled down. In this scenario, it is best to place a short position with stop loss over the second candle high.

The drawbacks of the unique three-river candlestick pattern are as follows.

  1. The time taken to confirm a pattern after it is formed represents one of the significant drawbacks of the unique three-river candlestick patterns. The confirmation is dependent upon the fourth candle, which includes a sequence that serves as an indication of price movements.

  2. The second problem is that the unusual three-river candlestick pattern has no clear price target, and it's rarely visible on charts. A large number of traders trade its variations. As they may not have been proven to produce profitability in the past, these variations could pose a risk and failure to deliver what is required.

Conclusion

This is an extremely rare trend reversal formation, the Bullish unique Three River candlestick pattern. A large black candle is the first day, followed by an additional black candle with a higher closing price. The third candle is white and has a small body. The last candle shows that the seller's pressure has decreased, and buyers are appearing on the market. Confirmation on the fourth day is needed to ensure that the trend is reversed. Proof can come from the white candle, with an upward gap or a higher closing price.

FAQs on Unique Three River Candlestick Pattern

Three consecutive candles in a particular sequence that indicates a reversal is a unique three-river candlestick pattern.

The sequence of the three candles differs between the unique three-river patterns and the inside-up candlestick pattern. The first candle in the three inside-up reversal patterns has a long body and is trending downward. The second candle is entirely throughout the first one and has a slight upward actual body. The last candle closes beyond the second.

The arrangement of the three candles in a particular way identifies a three-river candlestick pattern: the first candle is a lengthy downward real body, the second forms a record low hammer, and the last is a small upward real body inside the hammer's range.

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