Tri-star candlestick patterns are reversal structures that form at the top or bottom.
In other words, there are bullish and bearish tri-star candlestick patterns.
A tri-star has three doji or near doji candles. The first doji forms after an uptrend or a downtrend. The second doji (ideally) appears after a gap-up (in case of bearish) and a gap-down (in case of bullish). And the third candle (ideally) appears after a gap-down (in case of bearish) and a gap-up (in case of bullish).
Here is an image showing both versions.
How to Trade Tri-Star Candlestick Patterns?
Like any other candlestick pattern, it has some specific features that define its strength.
Here are things that help you to examine its reliability:
- A tri-star should appear after an uptrend or a downtrend. Otherwise, it does not have a reversal implication.
- Larger gaps lead to more strength and reliability.
- Wait for the next candle to confirm it. If it did not go in the way that was expected, then it is a failed pattern.
- Other technical tools and patterns help you to validate the structure. If there is no technical confirmation, then you can rely on it.
- Fundamental data and the economic calendar can be other sources of confirmation.
- If you are convinced, never forget to put a stop-loss, at the top or bottom of the pattern, based on its type.
More supporting signals from different sources such as indicators, chart patterns, and other candles lead to a higher chance of success. Always look for confirmations.
Example of Tri-Star Candlestick Pattern
Here is a 15-minute chart of PayPal that made a tri-star candlestick pattern at the top.
This pattern appeared after a sharp uptrend at the top. And, the RSI indicator showed it in an overbought level.
First, shorting looked risky. However, if you even sell in conditions like this, the risk/reward ratio is low, because the stop loss should be put above the pattern, which is not a lot.
Tri-star candlestick patterns form rarely. And because all candles are doji, and a doji describes an indecision moment, you need potent confirmations.