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Strong(er) Reversal Patterns

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#1a Three Black Crows

#1b Three Advancing White Soldiers

bi) Advance Block Pattern

bii) Stalled Pattern

Things to note about the Advanced Block/Stalled Pattern

#2a Three Mountains

Three Buddha Top

#2b Three River Bottom

Inverted Three Buddha

Differences between Tower Tops/Bottoms and Dumpling Top/Frypan Bottom

On corrections, first and second candle of the three white soldiers pattern is often the support

Fig 6.32: Hammer confirmed support within the second candle of the pattern

#1a Three Black Crows

Bearish pattern with three declining consecutive black candles
The three should close at, or near their lows
Ideally each openings should be within the prior session's real body, or below the prior days close and failed to gain substantial ground
Useful as a longer term pattern as pattern is only completed by the third black candle
Predicts the reversal of an uptrend

#1b Three Advancing White Soldiers

Opposite of the Three Black Crows
Group of three long white candles with consecutively higher closes
Close at or near its highs
Ideally each opening should be within or near the prior session's real body
Ideally the pattern appears at a low price area or after a period of stable prices
Useful only for longer-term bullishness as buying at the completion of the pattern may not have an attractive risk/reward

bi) Advance Block Pattern

A three advancing white soldiers where the second and/or third candle shows signs of weakening. This could be reflected by:

Progressively smaller white real bodies
Relatively long upper shadows

It could suggest that the rally is weakening and may be poised for a reversal.

bii) Stalled Pattern

Two long white candles followed by a small white candle, where the last white candle can either gap away from the long white body or it will be at the upper end of the prior long white body. It suggests that the bulls' strength has been exhausted.

Things to note about the Advanced Block/Stalled Pattern

Clues that the rally is losing force
Usually to liquidate/protect longs, usually not to short
Not a good reversal pattern
More consequential at higher price levels

#2a Three Mountains

Market backs off from a high three times or makes three attempts at a high
High point of the final mountain ideally should be confirmed with a bearish candle indicator (eg Doji/Dark-Cloud Cover)
May indicate a reversal of a stock's upward trend
Not necessary for the three price peaks to be exactly the same highs

Three Buddha Top

Central mountain of the three mountain top is the highest (see Fig 6.36). Same as the western heads and shoulders pattern.

The neckline of the pattern when broken, becomes the resistance

#2b Three River Bottom

An opposite of the Three Mountain Top
Occurs when the market tests a bottom three times
The peak of the troughs should be exceeded to confirm a bottom

Inverted Three Buddha

Inverse of the heads and shoulders pattern
Middle price bottom is the lowest
The neckline when broken, becomes the support

Drawing the neckline

Locate the left shoulder, head and right shoulder
Drawing the neckline:
1. Heads and Shoulders: Connect the low after the left shoulder and the low after the head
2. Inverse Heads and Shoulders: Connect the high after the left shoulder and the high after the head

#3a Dumpling Tops

Top reversal that usually has small real bodies as the market forms a convex pattern
Market goes from higher highs to same highs then to lower highs
Confirmation afterwards when the market gaps down
Gap down becomes the resistance
Same as the Western Rounded Top, but with the additional confirmation

#3b Frypan Bottoms

Bottom reversal pattern where it forms a concave design
Market goes from lower lows to the same lows then higher lows
Confirmation occurs afterwards when the market gaps up
Same as the Western Rounded Bottom, but with the gap up confirmation

For both the Dumpling Tops and Frypan bottoms, because of the gap, it is more significant than the classic Western patterns (Rounded Top & Bottom)

#4a Tower Tops

Occurs at high price levels
A top with white and black "towers" on either side of the small real bodies
Long candles all the way down and all the way up

#4b Tower Bottoms

Occurs in a descending market
Long black candles followed by smaller candles (to reduce bearish tone) followed by long white candles

Both Tower Tops/Bottoms are more useful for longer-term traders as it takes a long time for the pattern to complete.

Differences between Tower Tops/Bottoms and Dumpling Top/Frypan Bottom

Tower Tops/Bottoms needs long black and white candles for the "towers", not needed for Dumpling Top/Frypan Bottom
No gap needed for Tower Tops/Bottoms, but is necessary for Dumpling Top/Frypan Bottom

Last Updated: 25 November 2021

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