Tripple candlestick patterns and how to trade them

Understanding candlestick patterns is an important part of technical analysis in Forex trading. Here, we will focus on three powerful candlestick patterns: the Morning Star, the Evening Star, and the Abandoned Baby pattern (bullish and bearish). I will explain how to identify these patterns, where to enter your trades, and how to set your Stop Loss (SL) and Take Profit (TP) levels. Let's dive in!

1. The Morning Star

A morning star is a bullish reversal pattern that occurs at the bottom of a downtrend, signaling a possible upside reversal.

Creating the pattern:

• First candle: A long bearish candle.

• Second candle: A small indecisive candle (can be a doji or short-bodied candle).

• Third Candle: A strong bullish candle that closes at least halfway to the first candle.

• Entry Point: Enter after the third candle closes, confirming the reversal.

• Stop Loss: Place your SL slightly below the bottom of the second (smaller) candle so as not to be blocked by market noise.

• Take Profit: Set your TP to the nearest resistance level or use a risk reward ratio of 1:2 or 1:3 to secure a profit.

2. The Evening Star

The Evening Star is a bearish reversal pattern that appears above an uptrend, indicating a potential downside reversal.

Creating a pattern:

• First candle: A tall bullish candle.

• Second Candle: A small indecisive candle.

• Third candle: A strong bearish candle that closes at least halfway to the first candle.

• Entry Point: Enter after the third candle closes, confirming a bearish reversal

• Stop Loss: Set your SL slightly above the height of the other candle.

• Take Profit: Place your TP at the closest support level or use a risk-reward ratio of 1:2 or 1:3.

                              

3. Bullish & Bearish Abandoned Baby

Abandoned baby is a rare but strong reversal pattern that can be bullish or bearish depending on its position in the trend.

Bullish Abandoned Baby: 

Appears at the end of a downtrend.

• First candle: A long bearish candle.

• Second Candle: A doji or short-bodied candle with a gap below the previous candle (no overlap in wicks).
• Third Candle: A strong bullish candle that takes the gap up and shows a reversal.

Bearish Abandoned Baby: Appears at the end of an uptrend.

• First candle: A tall blush candle.

• Second Candle: A doji or short-bodied candle with a gap above the previous candle.

• Third Candle: A strong bearish candle gapping to the downside and showing a reversal.

Entry Point:

• Bullish: Enter after the third blush candle closes.

• Bearish: Enter after the third bearish candle closes.

• Stop loss: For both patterns, place your SL below (for bullish) or above (for bearish) a doji or a drop candle.
• Take Profit: Set the TP to the nearest resistance (bullish) or support (bearish) or use a risk-reward ratio of 1:2 or 1:3.

                                                       

3.Three White Soldiers

A bullish continuation pattern with three consecutive long bullish candles indicates strong upward momentum.

• Entry Point: Enter after the third candle closes.

• Stop Loss: Place SL under the first soldier.

• Take Profit: Set TP at next major resistance.

4.Three Black Crows

A bearish continuation pattern with three consecutive long bearish candles, indicating strong downward momentum.

• Entry Point: Enter after the third candle closes.

• Stop damage: Keep SL above the height of the first crow.

• Take Profit: Set TP at next major support.

                                                                     

Frequently Asked Questions (FAQs)

1. What is a candlestick pattern in forex trading?

A candlestick pattern is a series of price movements displayed as candlesticks on a chart, which helps traders predict potential market direction.

2. What is the best timeframe to trade candlestick patterns?

The 1-hour, 4-hour, and daily charts are often the best for spotting reliable candlestick patterns.

3. How reliable are candlestick patterns for trading?

Candlestick patterns are quite reliable, especially when combined with other technical analysis tools, but they do not guarantee future price movements.

4. Should I use candlestick patterns alone for trading decisions?

No, it’s best to combine candlestick patterns with other indicators like moving averages, support/resistance levels, or RSI to increase the accuracy of your trades.

5. What’s the difference between a bullish and bearish pattern?

A bullish pattern signals a potential upward reversal, while a bearish pattern indicates a potential downward reversal.