Three Stars in the South

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Figure 1.

Figure 1. Three Stars in the South pattern.

Japanese name: kyoku no santen boshi
Forecast: bullish reversal
Trend prior to the pattern: downtrend
Opposite pattern: none

Construction:

  • First candle
    • a candle in a downtrend
    • black body
    • long lower shadow
  • Second candle
    • black body
    • the opening below the prior opening
    • the closing below or at the prior closing
    • the low above the prior low
  • Third candle
    • a marubozu candle with black body
    • appears as a short line
    • a candle is located within the prior candle

The Three Stars in the South is classified as a three-line bullish reversal pattern.

All its candles are getting shorter and having black bodies, what indicates that a bearish momentum is weakening.

Name of the pattern may be somewhat misleading, as we are not dealing here with short candles similar to stars. Price gaps also do not exist between candle lines.

The first line of the pattern appears as a long line having a long lower shadow which needs to be longer than the body. This means that the first line may be formed by the Hammer or the Takuri Line pattern.

The second candle opens below the prior opening price and closes below the prior closing price. The low price should be higher than the previous low price.

The third line is a marubozu candle having a black body. The candle fits within the middle line. It appears as a short line. This last condition has the greatest impact on very low frequency, i.e. pattern rarely appears on the candlestick charts.

 

Figure 2.

Figure 2. What can we say about a pattern which appears extremely rarely?
In the case of the Three Stars in the South, its third line makes it the very rare pattern, which has to appear as a short line marubozu. On top of that it has to be opened and closed within the previous candle.
To treat this pattern as a bullish signal it needs to be confirmed, that is the bulls should move the price above the first line. On the chart, we can easily see that the bears control the stock after pattern appearance.

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