Since candlesticks are the basic building block of most technical analysis, the ability to read the patterns they make is a valuable trading skill. Here, we’ll go over everything you need to know to make money with tri-star candlestick patterns.
First though, let’s start with a definition.
What Is a Tri-Star Candlestick Pattern?
A tri-star pattern is a 3-candlestick formation that may signal a reversal. It consists of a doji, a gap in the direction of trend, another doji, a gap in the opposite direction of trend, and another doji.
The tri-star pattern has both bearish and bullish versions. It is also similar to the abandoned baby, star, and doji star patterns. For all of these patterns, the middle candle is essentially the apex of the potential reversal.
Of course, candlestick patterns do not guarantee specific outcomes. Instead, they offer clues as to what is going on in the market.
So the question is, what do tri-stars really tell you?
What Tri-Star Patterns Mean
Unlike some patterns, English speakers do not use the Japanese name for this one.
Instead, the term “tri-star” reflects the nature of the pattern, as doji (and other short-line) candles are often referred to as stars. While this is easier to remember than most pattern names, it doesn’t provide much insight into how the pattern works.
In trading terms:
- During the first period, price closed where it opened.
- Before the second period began, price moved in the direction of the trend.
- During the second period, price closed where it opened once again.
- Before the third period began, price moved in the opposite direction of the trend.
- During the third period, price closed where it opened for the third time in a row.
This sets the stage for reversal, as the trend may have reached an impasse.
How To Recognize Tri-Star Candlestick Patterns
Traders are attracted to patterns partly because they stand out.
However, it’s easy to see things on the charts that aren’t truly there (or anticipate events that never come to fruition). That’s the main reason you should wait for all candles to close before making decisions based on candlestick patterns.
In theory, a tri-star pattern must:
- Begin with a doji candle.
- Have a second candle that 1) is a doji and 2) opens with a gap moving with pre-existing trend.
- End with a doji that opens with a gap moving against trend.
In practicality, many traders will make some exceptions.
- Not all of the candles necessarily have to be doji, as long as they are all short candles with gaps between them.
- The third candle doesn’t necessarily have to open with a gap, as long as its wicks are contained within the wicks of the second.
Depending on who you ask, any of these standards may be more or less important. Technically, it would be more accurate to classify some of these variants as a different candlestick reversal pattern, such as the abandoned baby.
This is okay, as the implication means more than the classification. And similar patterns tend to have similar implications.
That’s not to say that these standards are altogether inconsequential (as we’ll elaborate on soon). You should definitely consider some non-negotiable, like the middle candle being a doji that furthers trend. Just keep in mind that context trumps criteria.
Ultimately, it’s up to you to decide how seriously to take each guideline.
After all, the goal of candlestick pattern analysis is to interpret underlying price action (not just label patterns correctly).
To this end, you need to understand where they fit.
Where Tri-Stars Fit in the Chart Narrative
The markets are often characterized as a battle between the bulls and the bears.
Tri-star patterns show that neither side gained any ground on candle one, those trading with trend made some headway between candles one and two, neither side gained any ground on candle two, those trading against trend pushed back between candles two and three, and neither side gained any ground on candle three.
On the chart, it looks like an arrow pointing toward the trend.
The first day saw little movement. After the markets closed though, price moved modestly in the direction of trend. Yet once traders awoke, there was some back and forth action but price ultimately settled where it opened. After the market closed on the second day, countertrend traders pushed back. This time, traders awoke to a gap in the opposite direction but the stalemate resumed, with neither side able to gain ground by the end of the third day.
Over the coming days, the range between the candle bodies is likely to become a crucial decision zone. If those looking for reversal can defend this price band, they have a better chance at making the trend change stick.
(This is only a hypothetical illustration, as a tri-star pattern could represent a number of real-world scenarios.)
In the short-term, it amounts to a virtual standstill.
The question traders need to ask themselves is,
“Is this dead end temporary or will it lead to a full reversal?”
To answer that question, you’ll need more than just an understanding of Japanese candlesticks and candlestick patterns. You’ll want to evaluate both within the context of longer-term chart patterns as well as trend and price levels. You’ll also want to make use of your own chart markup and indicators.
Explore the history of your preferred asset(s) with respect to tri-star patterns and apply your findings to your own trading style.
Now, you can test (and/or stretch) the criteria we mentioned earlier to identify the best trade setups. For instance, you may find that tri-stars where the bodies of the first and third candles are at the same level perform more reliably than those that are staggered. Or, you may find the opposite.
This is the kind of technical analysis that brings the story in the charts into full focus.
How To Trade Tri-Star Patterns
Reversal points are great places to enter or exit trades, especially when you catch them early enough.
Tristar candlestick patterns serve as easy-to-spot signs of potential reversal and may even lead to cycle-defining tops or bottoms. Generally, you can assign greater weight to multi-stick patterns than single candles because they give you more information over a longer duration.
However, there are a few things you should know about trading candlestick patterns.
First and foremost, hit rates for many of them hover around 50%. According to Bulkowski’s Encyclopedia of Candlestick Patterns, bullish tristars have a 60% hit rate while bearish tristars have a 52% hit rate. This is little better than a coin flip.
In addition, candlestick patterns do not have standardized price targets or measured moves like chart patterns do. This can make it difficult to decide when to get out of your trade or how to manage your stop loss.
Moreover, failed reversal patterns often lead to continuation or consolidation. Therefore, you need additional points of confirmation to increase your odds of success.
Some such factors include:
- Volume – Reversals are often accompanied by elevated trading volume. For tristar patterns, you want to see a spike on the second (or just after the pattern).
- Price Formations – Reversal patterns that form on the right side of important price levels or trend lines are often more reliable. Always be aware of support and resistance!
- Oscillator Shift – Oscillating indicators like the RSI or stochastics are commonly used to identify reversals by analyzing slope, percentile, and/or divergence.
The more corroborating elements are present, the more confident you can be about a tristar reversal signal.
Even so, it would be difficult to form a successful trading strategy around any given candlestick pattern. There simply isn’t enough there to develop a strong edge. Even with a great understanding of trading math, order execution, market psychology, risk management, options, and automation, you’d still have a hard time.
In essence, tristar patterns are much better idea givers than trade makers.
Better yet, you’ll probably find more success building your strategy around other tools then using candlestick patterns as the final point of confirmation.
Other Candlestick Pattern Types
The tri-star is but one of many candlestick patterns.
And while learning them all is not a prerequisite for successful trading, you’d certainly benefit from getting familiar with other candlestick pattern types.
They can be categorized in several ways.
The most straightforward way may be by the number of candlesticks (ie. 2-candlestick, 3-candlestick, 5-candlestick, etc.)
More helpful though, you can group them by price direction or signal type. That is, they can be bullish or bearish and/or imply reversal or continuation. Finally, you can multiply these designations together to separate them into bullish reversal, bearish reversal, bullish continuation, and bearish continuation categories.
On the other hand, you might just tackle them in alphabetical order:
- Abandoned Baby
- Breakaway
- Counterattack Lines
- Doji Star
- Engulfing
- Harami
- Harami Cross
- In Neck
- Kicking
- Ladder
- Last Engulfing
- Mat Hold
- Matching
- Meeting Lines
- On Neck
- Separating Lines
- Star
- Stomach
- Tasuki Gap
- Three Inside
- Three Methods
- Three Outside
- Tweezer
- Window
Sure, there are quite a few. But don’t let that intimidate you.
It’s unnecessary to memorize the name and criteria of every single pattern. The key is to learn the principles of price action and technical analysis.
In fact, you’re free to forget all of their names and specifications as long as you can look at a group of candlesticks and understand what they are trying to tell you. It’s just that the more of them you learn about, the easier this will become.
So take the time to study at least a few more of them.
Takeaways
To review:
Tri-stars are a type of candlestick pattern that signal a potential reversal. While not a guarantee, their appearance may indicate that market conditions are changing. Thus, they can help you find winning trades.
Of course, there are other candlestick patterns that you should learn about. Still, the ability to recognize patterns is not enough to trade successfully on its own.
Nonetheless, you’ve now added one more tool to your toolkit.
Have questions or more information to add? Contribute to the conversation in the comments below! Or, if you know someone who could benefit from this post, share it with them. You can also check out our Candlestick Patterns Guide to improve your candlestick analysis skills.