What is the unique three river?

The ‘unique three river’ is a candlestick pattern that is considered to predict that a bearish trending market will imminently be subject to a bullish reversal. Statistically speaking, it’s not the most reliable indicator as whilst it does denote a downward trend is pausing, confirmation that the reversal will take place would need to be supported by other indicators. The pattern is made of three candlesticks and occurs in a downwards trending market: Candlestick 1, bearish, Candlestick 2, bearish, hammer, opens higher than the previous days close, and has a long down-side tail signifying closes relatively close to the high. Candlestick 2, body engulfed by candlestick 1. Candlestick 3, bullish, small body and tail, trades below body of candlestick 2. As mentioned, the signal is not the most reliable. The psychology behind the price action is that a strong downward trend (as exemplified by candlestick 1) could be running out of steam. Candlestick 2 has a higher open but is not itself going to form the reversal. Instead bears prove more influential and will push price down in line with the underlying trend but near the end of the time interval bulls again show strength. So, what to make of candlestick 3? It’s small, suggesting the market is uncertain of its next move. It’s green, suggesting that bulls were in ascendancy over the period, but it’s not particularly convincing and remains below the body of candlestick 2. This is the crux, it can be seen as a first step towards a bullish reversal or a pause on the way to further downward action. Testing strategies that apply the denoted buy level and stop loss would be interesting but would best be done using back testing, demo accounts or small size. Making money from a strategy based on the ‘unique three river’ would involve a full analysis of: win-loss ratios, in which other indicators can be incorporated to improve accuracy and instrument/market traded.