Unique Three River Bottom Explained & Backtested (2024)

The unique three river bottom is a rare three-bar bullish reversal Japanese candlestick pattern that leads to short-term volatility according to multiple decades of backtesting.

Traders who practice candlestick technical analysis might be shocked to find that traditional trading methods are a losing proposition.

The good news is that data-driven traders can profit from this unique pattern. 

Keep reading if you want to learn the best unique three river bottom trading strategies.

What Are Unique Three River Bottom Candlestick Patterns?

The unique three river bottom is a three-bar bullish reversal pattern.

The pattern is supposed to change the tide of the market, but the data shows they lead to rocky waters. Let’s learn how to identify these three river patterns, and then we’ll learn the best unique three river bottom trading strategies.

How to Identify the Unique Three River Bottom Candlestick Pattern

A valid unique three river bottom candlestick pattern requires the following:

• The first candle is bearish and large.
• The second candle is bearish, its real body engulfed by the first candle and a lower low than the first.
• The third candle is small and bullish, with an open not lower than the second candle’s low.
• The unique three river bottom must occur during a downtrend.

ADP’s daily chart on November 23rd, 2018, shows a stellar example of the unique three river bottom candle pattern.

The three river’s last candle is below the fifty-day moving average, which we interpret as a short-term downtrend. We see a large bearish candle followed by a second candle engulfed by the first with a lower low than the first. The third candle is small and bullish that opens above the previous day’s low, fulfilling the unique three river pattern requirements.

Now that we’ve cleared the murky waters of identification, let’s learn the best three river bottom trading strategies.

How to Trade the Unique Three River Bottom Candlestick Pattern

Traders should trade the unique three river bottom using a bullish mean reversion strategy in the stock market, and a bearish mean reversion strategy in forex.

Crypto traders should avoid this pattern due to a lack of statistically significant trading strategies.

Let’s learn the traditional strategy for these three candles.

Unique Three River Bottom Bullish Reversal Trade Setup

We see bearish sentiment as the price is downtrending below the fifty-day moving average. There’s a large bearish candle, a second bearish candle engulfed by the first with a lower low, and a third bullish candle opening above the last candle’s low, fulfilling the unique three river bottom pattern requirements.

Traditional and data-driven crypto traders go long at breaking the third candle’s high while placing their stop loss below the second candle’s low.

Luckily, bullish reversal traders using the Advanced Micro Devices (AMD) daily chart on May 8th, 2002, produced profits, but there’s a better way.

Unique Three River Bottom Bullish Mean Reversion Trade Setup

The price is hovering around the fifty-day moving average. We still consider the price to be in a downward trend since the unique three river bottom’s last candle closed below the SMA. There’s a significant bearish candle engulfing the second, a second candle with a lower low than the first candle, and a third bullish candle that opens higher than the previous candle, fulfilling the unique three river requirements.

Smart stock traders go long when the price goes below and back above the pattern’s low while setting their stop loss at one ATR.

Let’s use the Amgen (AMGN) daily chart on February 7th, 2018, to clarify.

The pattern low occurs on the second candle at $172.04. The price pushed below and back above that low two days later, and the bulls ran.

And while this is the best unique three river trading strategy, the data tells forex traders to go in the other direction.

Luckily, bullish reversal traders using the Advanced Micro Devices (AMD) daily chart on May 8th, 2002, produced profits, but there’s a better way.

Unique Three River Bottom Bearish Mean Reversion Trade Setup

By now, we can skip identifying the unique three river bottom as it’s old hat.

The data tells us smart forex traders should go short when the price moves above and back below the pattern’s high, setting a stop loss of one ATR.

We’ll use the Bank of America (BAC) chart as an example.

The pattern high occurs on the first candle at $24.26. The price moves above and below this price on the first candle after pattern identification, triggering an entry and taking profits the next day.

While on the subject of profits, what does history tell us about the best unique three river bottom trading strategies?

Does the Unique Three River Bottom Pattern Work? (Backtest Results)

Using the following rules, I backtested unique three river bottom candlestick patterns 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 trading section above.
• Confirmation must occur within three days of the pattern signal.

Similar Candlestick Patterns

Traders confuse the thrusting pattern with other candlestick patterns.

Three Stars in the South vs. Three River Bottom

The three stars in the south candlestick pattern is an extremely rare three-candle bullish reversal. It has a large bearish candle with a long lower shadow, a second bearish candle almost engulfed by the previous, and a third engulfed bearish marabozu.

The three stars and the three river bottom patterns get confused due to the name and their rarity.

The Bottom Line

The unique three river bottom is a three-candle bullish reversal pattern that’s best traded using volatility-capturing strategies in the stock and forex markets and as intended in the crypto markets. 

I think it’s important for any trader to use a data-driven approach to learn candlestick patterns.