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THREE STARS IN THE SOUTH

Description

The slow down of the trend is visually obvious. The opposite signal pattern is the Advance Block pattern. The long black body at the end of a downtrend is the first portion of this pattern. The shadow indicates that some buying had presented itself. The next day reveals a deterioration of the selling. The third day is a Marubozu, no shadows. A bullish day following this pattern is good confirmation that the downtrend fizzled and reversed.

Criteria

  1. The first black candle day has a lower shadow that indicates buying stepping in. Almost a Hammer but not quite.
  2. The second day is like the first but on a smaller scale.
  3. Day Three should be a Marubozu, no shadows. It is within the previous day’s trading range.

Pattern Psychology

After a down trend, the daily formations start indicating that buyers are becoming evident. The second day indicates the same message on a small scale. Day three brings movement to a slow process. The bears should now be concerned about their positions. New lows are diminishing rapidly. This gives enough time for the short sellers to start covering their positions.

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