a. How to recognise it?
- There must be a preceding downtrend.
- Three consecutive long green candles observed.
- The second and third candle opens within body of the preceding one but closes higher than the preceding one.
b. What is the psychology behind?
- The first long green candle signals that the bears are exhausted after the prolonged downtrend and the bulls start to take over. The bulls continue the rally with the subsequent two candles closing higher.
c. How do we trade it?
- Look for the Three Soldiers at the bottom of a downtrend.
- Wait for the fourth candle to close above the high of the third candle to confirm the reversal.
- Open a long position upon confirmation.
- Place a stop-loss below the low of the first green candle.
Morning Star (Bullish)
a. How to recognise it?
- There must be a preceding downtrend.
- The first candle has a long and red body.
- The second candle opens with a gap-down and has a tiny green or red body.
- The third candle opens with a gap-up and closes at 50% or above of the first candle.
b. What is the psychology behind?
- The first long red candle implies the dominance of the bears in a downtrend.
- The gap-down of the second candle further confirms the bearish force but the tiny candle body tells us that the bears start to lose momentum.
- The gap-up of the third candle indicates that the bulls are overriding the bears and eventually manage or makeup 50% losses or more from the first long red candle.
c. How do we trade it?
- Look for the Morning Star at the bottom of a downtrend.
- Wait for the fourth candle to close above the high of the third green candle to confirm the existence of bullish force.
- Open a long position upon confirmation.
- Place a stop-loss below the low of the second candle.
Three Black Crows (Bearish)
a. How to recognise it?
- There must be a preceding uptrend.
- Three consecutive long red candles observed.
- The second and third candle open within the body of the preceding one but closes lower than the preceding one.
b. What is the psychology behind?
- The first long red candle signals that the bulls are exhausted after the prolonged uptrend and the bears start to take over. The bears continue the slump with the subsequent two candles closing lower.
c. How do we trade it?
- Look for the Three Black Crows at the top of an uptrend.
- Wait for the fourth candle to close below the low of the third candle to confirm the reversal.
- Open a short position upon confirmation.
- Place a stop-loss above the high of the first red candle.
Evening Star (Bearish)
a. How to recognise it?
- There must be a preceding uptrend.
- The first candle has a long and green body.
- The second candle opens with a gap-up and has a tiny green or red body.
- The third candle opens with a gap-down and closes at 50% or below of the first candle.
b. What is the psychology behind?
- The first long green candle implies the dominance of bulls in the uptrend.
- The gap-up of the second candle further confirms the bullish force but the tiny candle body tells us that the bull starts to lose momentum.
- The gap-down of the third candle indicates that the bears are overriding the bulls and eventually manage to eliminate 50% gains or more from the first long green candle.
c. How do we trade it?
- Look for the Evening Star at the top of an uptrend.
- Wait for the fourth candle to close below the low of the third red candle to confirm the existence of bearish force.
- Open a short position upon confirmation.
- Place a stop-loss above the high of the second candle.
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