Bullish Tri-Star

The bullish tri-star is a rare three-bar bullish reversal Japanese candlestick pattern that is best traded using mean reversion strategies according to multiple market backtests.

Most traders lose money trading the bullish tri-star candlestick pattern, and you don’t have to be one of them.

If this sounds interesting, keep reading to learn the best tri-star trading strategy according to history.

What Is a Bullish Tri-Star Candlestick Pattern?

Bullish Tri -Star Candlestick Pattern Illustration © Analyzing Alpha
Bullish Tri-Star Candlestick Pattern Illustration

The bullish tri-star is a rare three-bar candlestick pattern.

It gets its name from the three consecutive doji candlesticks, with the middle being a doji star.

The pattern is traditionally considered a bullish reversal, but the data suggests otherwise.

But before we discuss how to enter this supposed reversal pattern profitably, let’s learn how to identify this tri-star pattern on our candlestick charts.

How to Identify the Bullish Tri-Star Candlestick Pattern

Bullish Tri-Star Candlestick Pattern on the Ascendis Pharma (ASND) August 19th, 2019 daily chart
Bullish Tri-Star Candlestick Pattern on the Ascendis Pharma (ASND) August 19th, 2019 daily chart

The following are the requirements for a valid bullish tri-star pattern:

  • There must be three consecutive doji days.
  • The second doji must be a star and gap below the prior doji.
  • The bullish tri-star must occur in a downtrend.

The bullish tri-star pattern appeared on the Ascendis Pharma (ASND) August 19th, 2019, daily chart.

The price is below the 50-day moving average. We see three red doji candles with the middle doji gapping down, fulfilling the bullish tri-star pattern requirements.

With an understanding of how to identify this supposed bullish trend reversal pattern, let’s learn how to trade it.

How to Trade the Bullish Tri-Star Pattern

The best trading strategy for the bullish tri-star is a bullish reversal strategy in the stock market and a bearish continuation in the forex markets.

Data-driven traders shouldn’t trade the bullish tri-star candlestick pattern in the crypto markets due to a lack of data to determine statistically significant trading strategies.

Let’s cover how most traders lose money trading this pattern and then learn how profitable, data-driven traders fatten their pocketbooks by using history as their muse.

Bullish Tri-Star Bullish Reversal Trade Setup

Bullish Tri-Star Bullish Reversal Trade Setup on the AvalonBay Communities (AVB) April 20th, 2007 daily chart
Bullish Tri-Star Bullish Reversal Trade Setup on the AvalonBay Communities (AVB) April 20th, 2007 daily chart

Let’s make this lucid using the above AvalonBay Communities daily chart on April 20th, 2007.

There’s a prevailing downtrend as the price is below the 50-day moving average. We see three consecutive doji candles, with the second candle gapping down, giving us our pattern.

Most traders lose money by going long on a break of the third doji’s high, placing their stop loss below the second doji’s low.

The optimal way to trade this pattern is to continue to place your stop below the second candle’s low but to enter at a break of the third candle’s close.

The savvy stock market trader entering on a break of the close made significant profits anticipating the bullish reversal pattern above.

But this setup is less than optimal in the forex markets; let’s cover that next.

Bullish Tri-Star Bearish Continuation Trade Setup

Bullish Tri-Star Bearish Continuation Trade Setup on the Workday (WDAY) December 29th, 2015 daily chart
Bullish Tri-Star Bearish Continuation Trade Setup on the Workday (WDAY) December 29th, 2015 daily chart

Fantastic forex traders using data as their guide enter when the price crosses below the close of the second candle while setting a stop loss above the high of the first.

Let’s expand on this using Workday’s (WDAY) daily chart on December 29th, 2015.

The price pushes below the close on December 31st, triggering a short entry. The price dropped precipitously, creating windfall profits for bears.

Speaking of windfalls, what can history tell us about these best bullish tri-star trading strategies?

Does the Bullish Tri-Star Work? (Backtest Results)

Using the following rules, I backtested the bullish tri-star candlestick pattern on the daily timeframe in the crypto, forex, and stock markets.

  • A close above the 50-day SMA constitutes an uptrend.
  • I tested risk-reward ranges from 1 to 5.
  • The optimal risk-reward ratio is selected using profit per bar.
  • Entry and exits are discussed in the how-to trade section above.
  • Confirmation must occur within three days of the pattern signal.

Similar Candlestick Patterns

While few candlestick patterns look similar to the rare bullish tri-star due to having three consecutive doji candles, a few patterns still confuse many technical analysts.

Bearish Tri-Star vs. Bullish Tri-Star

Bearish Tri-Star Candlestick Pattern Illustration © Analyzing Alpha
Bearish Tri-Star Candlestick Pattern Illustration

The bearish tri-star candlestick pattern is the opposite of the bullish tri-star pattern. The bearish tri-star pattern occurs in an uptrend and has three dojis where the middle doji gaps up, whereas the bullish tri-star occurs in a downtrend with the middle doji gapping down.

Unique Three River vs. Bullish Tri-Star

Unique Three River Bottom Candlestick Pattern Illustration © Analyzing Alpha
Unique Three River Bottom Candlestick Pattern Illustration

The unique three river candlestick pattern, like the bullish tri-star pattern, is a three-bar bullish reversal pattern that only occurs in an uptrend.

The first candle is a long black candle. The second candle is a black harami with a lower low than the first candle’s low, and the third candle is a small white candle with an open not lower than the second candle’s low.

You’ll notice that there are not a lot of similarities between these two candlestick patterns, except that they both occur in a downtrend and have three candles.

The main reason they get confused is due to their names.

The Bottom Line

The bullish tri-star is a rare pattern that loses money across all markets when traded as intended. The pattern is supposed to portend a bullish reversal, but the data indicates incoming volatility. Smart traders should use this volatility to trade the pattern bullishly in the stock and crypto markets and bearishly in the forex market.

Instead of trading such a rare pattern. Find more opportunities with the most frequent high-probability candlestick patterns.

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