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Three Stars in the South

Read the lows, not the color

By
42Fibonacci
Updated
Read time
6–8 min

Three Stars in the South is a three-candle bullish reversal pattern after a decline: three red candles, each smaller with a higher low, the third small, with no (or tiny) shadows, inside the second's range. Sellers still win each close but reach less far each day. A later close above the first candle's high confirms it.

At a glance
Type
Three-candle reversal
Signal
Bullish, after a decline
Key rule
Three red candles, the first with a long lower shadow, each smaller with a higher low; the last has tiny or no shadows
Story
Sellers win every close but reach less far each day
Confirmation
A later close above candle 1's high
Fails
On a close below candle 1's low

What Is Three Stars in the South?

Three Stars in the South is a three-candle pattern that forms after a decline. All three candles are red: each one closes below where it opened. Each candle is smaller than the one before, and each one's low is higher.

The parts have names. The body is the thick part between the open and the close. The shadows are the thin lines above and below it, out to the session's high and low. The range is the whole candle, from high to low.

Candle 1
A long red body with a long lower shadow, and usually only a small upper shadow. Sellers drove price down, and buyers took back part of the drop by the close.
Candle 2
Another red candle, like the first but smaller, with a lower shadow of its own. Its low stays above candle 1’s low.
Candle 3
A small red candle with no shadows, or only tiny ones (with none it is a marubozu: it opens at its high and closes at its low). It sits inside candle 2’s high-to-low range.
Note
Traders disagree on the last candle. Some require a true marubozu, with no shadows at all. Others accept very short shadows, as long as the candle is small and stays inside candle 2's range. Either way, the pattern is rare: it needs four conditions at once (the first with a long lower shadow, shrinking candles, rising lows, and a small last candle with tiny or no shadows), and most declines miss at least one.

How Three Stars in the South Forms

Three sessions, each a little quieter than the last.

The flush

"Another big down day. But look how far it came back off the low."

Candle 1 is the decline at full stretch: a long red body. Its long lower shadow shows buyers stepped in below and recovered part of the drop before the close.

The smaller push

"Down again, but it held above yesterday’s low."

Candle 2 is red again, but smaller. Sellers pushed lower during the day and could not reach candle 1’s low. Buyers lifted it off its own low too.

The quiet close

"A small red day. Nobody went anywhere."

Candle 3 is small, with no shadows or only tiny ones. It opens and closes inside candle 2’s range. Sellers still won the session, but the move was the smallest of the three.

Buyers win none of the three closes. What changes is how far sellers get. Each push lower is shorter, and each one stops higher. That is a decline losing force. It is not yet a decline that has turned.

Is Three Stars in the South Bullish or Bearish?

Bullish by name, after a decline. It is listed as a bullish reversal pattern. But all three candles are red, so the candles alone do not settle anything. They show selling getting smaller. They do not show buyers taking over.

The confirmation decides. A later close above candle 1's high confirms it: price has climbed back over the whole pattern, including the session that started it. A close below candle 1's low fails it: sellers found new ground after all, and the decline is running again.

Read the Lows, Not the Color

The color of a candle tells you who won the session. It does not tell you how far price went. Three red candles in a row look like a decline carrying on, and the closes may even keep edging lower. To see what is really happening, read two other things.

Red closes, shrinking sellingIllustrative
Rising lows123ConfirmsCandle 1 highCandle 1 lowEach candle's range, high to lowCandle 1$2.95Candle 2$1.20Candle 3$0.40
All three pattern candles are red, and each closes a little lower. Read the lows instead: each one is higher than the last. The strip under the chart shows the range of each candle: $2.95, then $1.20, then $0.40. Sellers still won every close, but each day they got less far. The turn only counts once a later close clears candle 1's high.

  1. Read the lows

    Compare each candle’s low with the one before. In a decline at full strength, each session reaches a new low. Here, each low is higher. Sellers keep pushing, but they run out of room sooner every day.

  2. Read the ranges

    Compare each candle’s range, high to low, with the one before. A shrinking range means less ground was fought over. The third candle’s missing shadows are part of this: price moved little or not at all outside its open and close.

  3. Then read the closes

    The closes can still be lower, by a little. That is why the pattern is easy to miss: a line chart of closes shows a decline that has not stopped. The lows and ranges show it slowing.

Lower closes with higher lows and smaller ranges is the whole idea. It says the decline is still in charge of each session, and is getting less out of each one. In other patterns, color and the close are separate reads too: a red candle can still close above the day before, which the Homing Pigeon guide covers.

A smaller range is not always a good sign, though. A stock can go quiet before it falls again. A range only means something next to the stock's normal day. If the three candles are all far smaller than usual, the market may simply have stopped trading. The Candlesticks + ATR guide shows how to measure a normal day.

Tip
The skill carries to any red run. When a decline prints several red candles in a row, don't stop at the color. Check whether the lows are still falling and whether the ranges are still as wide. A run that keeps its color but loses its reach is a different market from one that keeps both.

Three Stars in the South vs. Three Black Crows and Ladder Bottom

Several patterns are a run of red candles. What the candles do with their lows and shadows tells them apart.

Three Stars in the South
  • Three red candles, each smaller, each low higher
  • After a decline: selling losing force
Three Black Crows
  • Three long red candles, each closing near its low
  • New lows each day: selling at full force
Ladder Bottom
  • Four red candles, the fourth with an upper shadow
  • Completed by a green fifth candle

Three Black Crows are the opposite read. Three long red bodies, each closing near its low, each reaching a new low. That is sellers in full control, a bearish pattern. Three Stars in the South has the same color and the opposite shape: shrinking candles and rising lows. Read about the crows in the Three White Soldiers guide →

A Ladder Bottom shows buyers testing upward. Its sign is an upper shadow on the fourth red candle: buyers pushed price up during the session. Three Stars in the South shows something quieter. No one pushes up; sellers just reach less far down. Read the Ladder Bottom guide →

Candle 1 is not a Hammer. It has a long lower shadow, but its body is long too. A Hammer needs a small body at the top of the range. And when the slowing candles have almost no body at all, three doji in a row (candles whose open and close are almost equal), the closer lookalike is the Tri Star, which also needs the middle doji to gap beyond the other two. Read the Tri Star guide →

How to Trade Three Stars in the South

  1. Check there was a decline

    Look for a run of lower highs and lower lows into candle 1. The pattern describes a decline losing force; without a decline there is nothing to lose force.

  2. Check the lows and the ranges

    Each low higher than the one before, each range smaller, and the third candle small with no (or tiny) shadows, inside candle 2’s range. If the lows are still falling, it is not this pattern.

  3. Wait for the close above candle 1’s high

    Don’t buy the third red candle. Wait for a later close above candle 1’s high. Candle 1 is tall, so this can take several sessions, and price may never get there.

  4. Put the stop below candle 1’s low, and size for it

    Candle 1’s low is the pattern’s lowest point. A close below it fails the pattern. Place the stop a little under it. The entry is above candle 1’s high, so the stop is at least that whole candle away. Size the position from that distance.

Warning
A tall first candle means a wide trade. The confirming level sits at the top of candle 1 and the stop sits under its bottom. The longer that candle, the more each share risks. Work out the distance before you decide the trade is worth it.
Worked example

A stock has fallen for three weeks. Candle 1 opened at $48.10, hit $48.15, fell to $45.20 and closed at $46.30. Candle 2 opened at $46.80, hit $46.90, fell to $45.70 and closed at $46.10. Candle 3 opened at $46.40, its high, and closed at $46.00, its low. On the fifth session after candle 3, the stock closes at $48.60. You plan to risk $700.

Is this Three Stars in the South, is it confirmed, and what does the trade risk?

The approach

Yes. All three candles are red. The lows step up: $45.20, then $45.70, then $46.00. The ranges shrink: $2.95, then $1.20, then $0.40. Candle 1 has a $1.10 lower shadow under a $1.80 body and only a 5-cent upper shadow. Candle 3 has no shadows and sits inside candle 2's $45.70 to $46.90 range. The closes still fell 30 cents across the three days, yet each day sellers reached less far. The $48.60 close is above candle 1's $48.15 high, so the pattern is confirmed. A stop ten cents below candle 1's low, at $45.10, risks $3.50 a share from $48.60, so $700 buys 200 shares.

Reading Three Stars in the South in Context

The candles say the selling is shrinking. Context says whether it is shrinking somewhere that matters.

Moving averages. If the decline is a pullback (a temporary dip) inside a longer uptrend, with price above a rising 200-day moving average, slowing selling there can read as the pullback running out. Under a falling average, it may only be a pause before the next leg down. Read the Candlesticks + Moving Averages guide →

Support. Rising lows that sit just above a level buyers defended before, such as a prior low, show sellers stopping where traders were already watching.

Volume. Volume that falls across the three candles fits the story of selling drying up. Heavy volume on the confirming close suggests buyers arriving in size. Read the Candlesticks + Volume guide →

Common Three Stars in the South Mistakes

MistakeInstead
Reading it by color

Three red candles in a row. The decline is getting stronger.

Check the lows and the ranges. Rising lows and shrinking ranges mean sellers are reaching less far, even while they win the closes.

Buying the third red candle

The selling has dried up. Buy the close of candle 3.

Slowing selling is not buying. Wait for a later close above candle 1’s high.

Calling any three shrinking red candles a match

Three smaller red candles in a decline. That is the pattern.

The lows must rise too, candle 1 needs its long lower shadow, and candle 3 must be small and inside candle 2’s range. If any one is missing, it is just a decline.

Setting the stop too tight

Stop under candle 3, to keep the risk small.

The pattern fails below candle 1’s low, the lowest point of the three. Size the trade from there, or pass.

Key takeaways
  • Three Stars in the South is three red candles after a decline, each smaller with a higher low, the last small, with no (or tiny) shadows, inside the second candle’s range
  • Color says who won each session; the lows and ranges say how far sellers got. Here they reach less far every day
  • The closes can still edge lower. The lows and ranges are what show the selling shrinking
  • The candles alone don't settle the direction: a later close above candle 1's high confirms it, and a close below candle 1's low fails it
  • The stop goes under candle 1’s low and the entry comes above its high, so size the trade from that whole distance

Frequently Asked Questions

What is the Three Stars in the South candlestick pattern?

A three-candle pattern that forms after a decline and is read as a bullish reversal candidate. All three candles are red. Each is smaller than the one before and has a higher low. The first has a long lower shadow, and the third is a small candle with no shadows (or only tiny ones) that sits inside the second candle’s range.

Is Three Stars in the South bullish or bearish?

Its name puts it among the bullish reversal patterns, but all three candles are red, so the candles alone do not settle the direction. They show selling getting smaller, not buyers taking over. A later close above the first candle’s high confirms it; a close below the first candle’s low fails it.

Why does Three Stars in the South count as bullish when all three candles are red?

Because the color only says who won each session. The lows and the ranges say how far sellers got. Here each low is higher and each candle covers less ground, so sellers are still winning the closes but reaching less far every day. That is a decline losing force, which a confirming close can then turn.

How is Three Stars in the South confirmed?

Wait for a later close above the first candle’s high. That close takes price back over the whole pattern, including the session that started it. The first candle is tall, so this can take several sessions, and it may never come.

Where do you put the stop loss on Three Stars in the South?

A little below the first candle’s low, which is the lowest point of the pattern. A close below it means sellers found new ground and the pattern has failed. The entry comes above the first candle’s high, so size the position from that whole distance.

What is the difference between Three Stars in the South and Three Black Crows?

Both are three red candles. Three Black Crows are long red bodies that close near their lows and reach new lows each day: selling at full force, a bearish pattern. In Three Stars in the South the candles shrink and the lows rise: selling losing force.

How is Three Stars in the South different from a Ladder Bottom?

A Ladder Bottom is four red candles, the fourth with an upper shadow that shows buyers testing higher, completed by a green fifth candle. Three Stars in the South has no upward test: sellers simply reach less far down each day, and a later close above the first candle’s high is still needed.

Does the third candle have to be a marubozu?

Traders disagree. Some require a true marubozu, a candle with no shadows at all. Others accept very short shadows, as long as the candle is small and stays inside the second candle’s high-to-low range.

Why is the Three Stars in the South pattern so rare?

It needs several conditions at once: a long first candle with a long lower shadow, a smaller second candle with a higher low, and a small third candle with no (or tiny) shadows inside the second candle’s range. Most declines miss at least one of them.

Is there a bearish version of Three Stars in the South?

There is no common bearish counterpart. The pattern is only read after a decline, as three red candles whose selling shrinks.

The Bottom Line

Three Stars in the South is three red candles that show a decline losing force. The lesson it teaches is that color only says who won the session. The lows and the ranges say how far sellers got, and here they get less far every day.

Check the rising lows and the shrinking ranges. Wait for a close above candle 1's high, put the stop below candle 1's low, and size the trade from that distance. You can read any red run by its reach, not just this pattern.

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