Unique Three Pattern: Bullish Reversal Candlestick

Last Updated: 17 Mar 2023

The candlestick pattern is a widely used technical indicators among analysts and traders to predict the price movements in a security. A candlestick chart pattern conveys the four main price points: open, high, low, and close of a stock It can be shown in various periods like hourly, daily, or weekly.

A candlestick chart when viewed along with a few other candles can suggest price movements precisely. A unique three-river candlestick pattern is a sequence of three candles predicting the price movement. In this article, you will learn about what is a unique three-river pattern in detail.

Unique Three-River Candlestick Pattern

A unique three-river candlestick pattern constitutes three candlesticks in a specific sequence. Typically, the sequence looks like a long downward real body, a hammer making a new low, and the last candle has a small upward real body that stays within the range of the hammer.

Often, it signals a bullish reversal but it highly depends on the price movement after the pattern formation. The fourth candle is used to confirm the price direction following the pattern. If the prices surge after the pattern, then it is assumed to be a bullish reversal but if the prices plunge, it is considered a bearish continuation pattern.

A candlestick pattern needs to meet the following criteria to be interpreted as the unique three-river candlestick pattern:

1. The trend in the market is downwards.

2. The first candle of the pattern closes much lower than the opening price, i.e., it has a bearish long real body. This long real body indicates that bears control the prevailing downtrend.

3. The second body forms a hammer with a lower shadow, recording the newest low. The hammer here suggests that the bulls are recovering and gaining strength after a downtrend.

4. The third candle closes a little above the opening price. In other words, it has a short white body that is below the real body of the second candle. The small white

5. The third candle mustn’t exceed the high and low of the second candle.

The above formation suggests a bullish reversal from the prevailing downtrend. However, a few instances lead to a bearish continuation. Due to such exceptional signals, traders need to consider the candlestick pattern with some context or string signals for a clear direction of the potential price movements.

Psychology of unique three-river trading

In the case of the unique three-river pattern, a confirmation is provided by the fourth candle in the series. A higher price on the confirmation candles proves the pattern to be bullish reversal and signals traders to take a long position. Traders can put a stop loss below the low of the second candle.

If the price is seen to be pulled down on the fourth candle, it is expected that the prices drop further instead of a bullish reversal indication. In such a scenario, it is best to take a short position with a stop loss above the second candle’s high.

Trading using the unique three-river pattern

Understanding the psychology of the three unique river patterns is crucial owing to its specifics. Some traders will trade variations of the pattern keeping the psychology of the pattern intact.

For example, the second candle turns out to be a long-legged Doji instead of a hammer. The third candle moves a little lower instead of higher. Even with these discrepancies, the psychology behind trading, in general, remains intact. This is especially true if there is a strong confirmation candle in either direction.

Difference between the Unique three-river and the Three Inside-up Candlestick Patterns

The biggest underlying difference between both the unique three-rivers and the three inside-up candlesticks is the sequence that the candles form to make the pattern. While both of them have essentially three candles, the sequence makes all the difference. In the three inside-up reversal patterns, the first candle has a long body, trending downwards, the second candle is entirely within the first candle with a small upward real body, and the third candle closes above the second one.

Limitations of the Unique three-river Candlestick Pattern

One of the significant limitations of the unique three-river candlestick pattern is the time taken to confirm after the pattern is formed. The confirmation depends on the 4th candle that forms in the sequence that signals the direction of the price movement.

Another drawback is that the unique three-river candlestick pattern doesn’t communicate a clear price target and the pattern itself is rarely seen on the charts. Many traders trade on its variations. These variations could be risky and might fail to give the desired results as they may not be proven to bring profitability, historically.

Frequently Asked Questions

What is a unique three-river candlestick pattern?

Ans: An unique three-river candlestick pattern is formed of three consecutive candles in a particular sequence that often indicates a bullish reversal.

How do you identify the unique three-river patterns?

Ans: An unique three-river candlestick pattern can be identified by the sequence of the three candles: the first candle is a long downward real body, the second one forms a record low hammer, and the last one is a small upward real body within the range of the hammer.

What is the difference between the unique three-river and the three inside-up candlestick patterns?

Ans: The two charts differ in the sequence of the three candles that forms the pattern. In the three inside-up reversal patterns, the first candle has a long body, trending downwards, the second candle is entirely within the first candle with a small upward real body, and the third candle closes above the second one. In this unique three-river pattern, the first candle is a long downward real body, the second one forms a record low hammer, and the last one is a small upward real body within the range of the hammer.