Bullish Three Stars in The South Candlestick

Bullish Three Stars in The South Candlestick
Type: Reversal
Reliability: Moderate
After an established downtrend, day-one is a long red day with a long lower wick
Day-two is also a red day similar to the first, only with a smaller body and shorter bottom wick
Day-three trades within the second days range and has a small red body with no wick at all (Red Marubozu)

The Bullish Three Stars in the South formation suggests weakening in the established downtrend. Although each new day is able to close lower, and despite the fact that sellers are able to drive price down illustrated by the lower wicks, those short positions are not able to get the close price to continue the strong bearish trend.

While the pattern predicts a reversal, it may only reflect shorts paring off their position (just a delay or respite in the downtrend). Thus analysts do not usually take the Bullish Three Stars in the South as a strong enough buy signal in itself. Instead analysts use it as an indication to liquidate short positions and watch for buying opportunities.

This formation is most significant after a protracted sell-off.

In non-FX Markets the Bullish Three Stars in the South require price gaps up each day. When translating this same move in price action to the Foreign Exchange Market, candles will share the same close price. Since the gap up occurs during off-exchange hours the FX version may see an upper wick. Price gaps of course are unlikely in more efficient, 24 hour Forex markets.

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