Three Stars In The South Candlestick Pattern

The three stars in the south are three-bar Japanese candlestick patterns that supposedly signal a weakening downtrend and a possible bullish reversal. The pattern occurs so infrequently that the verdict is still out if the pattern works as intended.

In fact, the pattern is so rare that it hasn’t occurred in the last 21 years in the stock market when analyzing the largest 5000 companies. 

And while I can’t tell you how a data-driven trader would trade it, I’ll still let you know how to identify it and how traders have traditionally traded this extremely rare candlestick pattern.

What Is a Three Stars in the South Candlestick Pattern?

The three stars in the south is a bullish reversal pattern consisting of three bearish candles. It is a scarce pattern occurring during a downtrend. The pattern supposedly indicates the progressive weakness of the sellers and signals a potential bullish reversal.

How to Identify Three Stars in the South Candlestick Patterns

Three Stars In The South Candlestick Pattern Illustration

The following are the requirements for a valid three stars in the south pattern: 

  • The first candle is a long bearish candle with a long lower shadow.
  • The second candle is a smaller bearish candle that opens higher than the prior close and closes lower than the prior candle’s low.
  • The second candle must have a lower shadow but not longer than the prior candle’s shadow.
  • The third candle is a small bearish marubozu (or very short wicks if more lenient) engulfed by the prior candle’s range.
  • The pattern must occur within a downtrend.

Again, this pattern in its strictest sense has not occurred in the stock market on the daily chart in the last 21 years.

How to Trade the Three Stars in the South Candlestick Pattern

So how does a trader trade this elusive pattern? To be honest, I wouldn’t. I don’t have data to back up my trades, and it happens so infrequently I’m not going to waste screening for it.

But for those interested, it’s supposedly a bullish reversal pattern where a trader goes long at the break of the high of the third candle with a stop loss below the first candle’s low.

Does the Three Stars in the South Candlestick Pattern Work? (Backtest Results)

Using the following rules, I backtested the three stars in the south 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.

I used the lenient pattern identification to get some results where the final candle has shorter wicks and isn’t necessarily a bearish marubozu.

Three Stars in the South Bullish Reversal Backtest Results

cryptoforexstock
pattern_namethree stars in the souththree stars in the souththree stars in the south
pattern_categorybullish reversalbullish reversalbullish reversal
pattern_bars333
required_trenddowntrenddowntrenddowntrend
traded_asbullish reversalbullish reversalbullish reversal
stop_bar_typelowlowlow
entry_bar_typehighhighhigh
risk_reward0.030.0
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516951
pattern_tickers0.0100.0
patterns0.0310.0
trades0.0300.0
confirm_perc0.00.970.0
wins0.040.0
losses0.0260.0
win_perc0.00.1330.0
avg_win_bars0.058.250.0
avg_loss_bars0.024.350.0
cons_wins0.020.0
cons_losses0.0120.0
edge0.0-0.4710.0
cryptoforexstock
pattern_namethree stars in the souththree stars in the souththree stars in the south
pattern_categorybullish reversalbullish reversalbullish reversal
pattern_bars333
required_trenddowntrenddowntrenddowntrend
traded_asbullish reversalbullish reversalbullish reversal
stop_bar_typelowlowlow
entry_bar_typeclosecloseclose
risk_reward0.030.0
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516951
pattern_tickers0.0100.0
patterns0.0310.0
trades0.0310.0
confirm_perc0.01.00.0
wins0.040.0
losses0.0270.0
win_perc0.00.1290.0
avg_win_bars0.058.00.0
avg_loss_bars0.023.630.0
cons_wins0.020.0
cons_losses0.0120.0
edge0.0-0.4830.0

Three Stars in the South Bearish Continuation Backtest Results

cryptoforexstock
pattern_namethree stars in the souththree stars in the souththree stars in the south
pattern_categorybullish reversalbullish reversalbullish reversal
pattern_bars333
required_trenddowntrenddowntrenddowntrend
traded_asbearish continuationbearish continuationbearish continuation
stop_bar_typehighhighhigh
entry_bar_typelowlowlow
risk_reward0.010.0
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516951
pattern_tickers0.0100.0
patterns0.0320.0
trades0.0310.0
confirm_perc0.00.970.0
wins0.0230.0
losses0.080.0
win_perc0.00.7420.0
avg_win_bars0.03.260.0
avg_loss_bars0.01.250.0
cons_wins0.0100.0
cons_losses0.010.0
edge0.00.4820.0
cryptoforexstock
pattern_namethree stars in the souththree stars in the souththree stars in the south
pattern_categorybullish reversalbullish reversalbullish reversal
pattern_bars333
required_trenddowntrenddowntrenddowntrend
traded_asbearish continuationbearish continuationbearish continuation
stop_bar_typehighhighhigh
entry_bar_typeclosecloseclose
risk_reward0.010.0
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516951
pattern_tickers0.0100.0
patterns0.0320.0
trades0.0310.0
confirm_perc0.00.970.0
wins0.0240.0
losses0.070.0
win_perc0.00.7740.0
avg_win_bars0.03.170.0
avg_loss_bars0.01.140.0
cons_wins0.0110.0
cons_losses0.010.0
edge0.00.5440.0

Three Stars in the South Mean Reversion Backtest Results

cryptoforexstock
pattern_namethree stars in the souththree stars in the souththree stars in the south
pattern_categorybullish reversalbullish reversalbullish reversal
pattern_bars333
required_trenddowntrenddowntrenddowntrend
traded_asbearish mean reversionbearish mean reversionbearish mean reversion
stop_bar_typeatratratr
entry_bar_typepattern_highpattern_highpattern_high
risk_reward0.010.0
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516951
pattern_tickers0.0100.0
patterns0.0320.0
trades0.090.0
confirm_perc0.00.280.0
wins0.060.0
losses0.030.0
win_perc0.00.6670.0
avg_win_bars0.00.830.0
avg_loss_bars0.00.00.0
cons_wins0.030.0
cons_losses0.020.0
edge0.00.3370.0
cryptoforexstock
pattern_namethree stars in the souththree stars in the souththree stars in the south
pattern_categorybullish reversalbullish reversalbullish reversal
pattern_bars333
required_trenddowntrenddowntrenddowntrend
traded_asbullish mean reversionbullish mean reversionbullish mean reversion
stop_bar_typeatratratr
entry_bar_typepattern_lowpattern_lowpattern_low
risk_reward0.010.0
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516951
pattern_tickers0.0100.0
patterns0.0320.0
trades0.0130.0
confirm_perc0.00.410.0
wins0.090.0
losses0.040.0
win_perc0.00.6920.0
avg_win_bars0.00.110.0
avg_loss_bars0.01.750.0
cons_wins0.060.0
cons_losses0.010.0
edge0.00.3820.0

The Bottom Line

The three stars in the south pattern is incredibly rare, and I wouldn’t recommend trading it as it doesn’t occur frequently enough to screen for it regularly, and there’s not enough data to back up the profit assumptions.

So why learn this candlestick pattern? I set out to test every pattern to understand price action deeply. And now, if I’m ever playing trader trivia, I can answer what the rarest pattern of them all is.

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