UNIQUE THREE RIVER BOTTOM

Unique Three Description

The Unique Three River Bottom in Figure 2.65 is a bullish pattern, somewhat characteristic of the Morning Star Pattern. It is formed with three candles. At the end of a downtrend, a long black body is produced. The second day opens higher, drops down to new lows, and then closes near the top of the trading range. This is a Hammer-type formation. The third day opens lower but not below the low of the previous day. It closes higher, producing a white candle. But it doesn't close higher than the previous day's close. This pattern is rare.

Criteria

• The Candlestick body of the first day is a long black candle, consistent with the prevailing trend.
• The second day does a Harami/Hammer. It also has a black body.
• The second day's shadow has set a new low.
• The third day opens lower, but not below the lowest point of the previous day. It closes higher but below yesterday's close.

Signal Enhancements

• The longer the shadow of the second day, the probability of a successful reversal becomes greater.

Pattern Psychology

After a strong downtrend trend has been in effect, the trend is further promoted by a long body black candle. The next day prices open higher but the bears are able to take prices down to new lows. Before the end of the day, the bulls bring it back up the top end of the trading range. The third day, the bears try to take it down again, but the bulls maintain control. If the following day sees prices going up to new highs, the trend has confirmed a reversal. (See Figure 2.66.)

THE BREAKAWAY

Breakaways

Description

If a trend has been evident, the breakaway pattern (see Figures 2.67 and 2.68), whether bullish or bearish initially indicates the acceleration of that trend. The pattern starts with a long candle representing the current trend. The next candle gaps away from the long candle with the color of that candle the same as the long candle. The third day can be either color. It will not show a change in the trend. The fourth day continues the trend, having the same color as the trend. The fifth day reverses the trend. It opens slightly opposite of the way the trend has been running. From there, it continues in the same direction to where it closes in the gap area.

Criteria

• The first day is a long-body day and has the color of the existing trend.
• The second day gaps away from the previous close. It has the same color as the first day candle.
• Days three and four have closes that continue the trend.
• The last day is an opposite color day that closes in the gap area between day one and day two. 

Pattern psychology

After a trend, usually in an overbought or oversold area, a long candle forms. The next day they gap the price further. That day has the same color as the trend. For the next two days, the bulls and/or bears keep the trend going in the same direction, but with less conviction. The final day, the move goes opposite the existing trend with enough force to close in the gap area between day one and day two. This day completely erases the move of the previous three days. (See Figure 2.69.)