Three River Bottom

This candlestick pattern is bullish in nature and is an extremely rare reversal pattern. It consists of three different days and is characterized by a downtrend in the market. When identifying the three river bottom pattern there are certain criteria that must be met. The first day displays a long black candlestick which is consistent with the current trend. The second day displays what looks like a harami candle or candlestick hammer signal and it is a black body. The lower shadow on the second day sets a new low. On the third day there is a short white candlestick that opens lower but not below the lowest point of the second day. The third day also closes higher but closes below the second day’s close and is a very small real body. Investors compare this pattern to the morning star candlestick pattern.

What does the three river bottom pattern indicate is occurring in the markets?
The first day is a large down day indicating a falling market. The second day opens at a higher level, there is a new low for day, but then the day turns around closing near the high. This new high questions the strength of the bears. The harami that appears, as mentioned above, also signals that the bears are weakening. The third day continues to reinforce indecision of the markets and the markets lose selling pressure as the bulls take over.

The confirmation of the three river bottom pattern occurs on the fourth day and must show that the pattern has in fact reversed. This is evident if there is a large gap up or a higher close on the fourth day, or in the form of a white candlestick. Basically, if the price rises to a new high on the fourth day, then the bullish reversal is confirmed. Additionally, the longer the shadow is on the second day, the greater the probability of a reversal.

Japanese Candlesticks are the fastest way for new investors to quickly and accurately read stock charts. Once you are comfortable with the major candlestick signals, expand your expertise by learning the various secondary Candlestick Patterns. Combine these with your favorite Technical Analysis indicators, such as the moving average , and you have the perfect trading arsenal for evaluating stocks, currencies, commodities, or Exchange Traded Funds .

Please continue your candlestick pattern education and read about the three inside up candlestick pattern.