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Written and copyright © 2008-2010 by Thomas N. Bulkowski. All rights reserved.
In my book,
Encyclopedia of Candlestick Charts  , pictured on the right,
I explore the entire range of candlestick patterns from abandoned babies to windows (not exactly A to Z, but you get the idea), in both bull and bear markets, using almost 5 million candle lines
in the tests.
The book takes an in-depth look at 103 candlestick patterns and reports on behavior and rank (3 types: reversal rate, frequency, and overall performance), identification guidelines,
performance statistics (tables of general statistics, height, and volume), trading tactics (tables of statistics on reversal rates and performance indicators),
and wraps each chapter with a sample trade. I share a sliver of that information below. If you like what you read here, then you will love the book. Help support this website and buy a copy
by clicking on the above link.
The unique three-river bottom candlestick is supposed to be a bullish reversal, but it actually acts as a bearish continuation, that is, if you can find it. The candle pattern has
a frequency rank of 89 where 1 is the most popular candle out of 103 candle types. Overall performance is beyond the far side of mid list, too, and that means it does not perform well.
Important Results
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Theoretical performance: Bullish reversal
Tested performance: Bearish continuation 60% of the time
Frequency rank: 89
Overall performance rank: 60
Best percentage meeting price target: 52% (bull market, up breakout)
Best average move in 10 days: -5.60% (bear market, down breakout)
Best 10-day performance rank: 25 (bear market, down breakout)
All ranks are out of 103 candlestick patterns with the top performer ranking 1. "Best" means the highest rated of the four combinations of bull/bear market, up/down breakouts.
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 Unique Three-River Bottom
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Discussion
The unique three-river bottom is supposed to act as a bullish reversal, but testing shows that it is really a bearish continuation candle 60% of the time. As a continuation rate, that ranks
22nd. With a frequency rank of 89, this candle pattern will be difficult to find. The overall performance rank is 60 and that means even if you do find it, you might be wasting your time. It
just doesn’t outperform.
The best average move 10 days after the breakout is a drop of 5.6% in a bear market. That ranks 25th. I consider moves of 6% or higher to be good ones, so this candle comes close. Taking
a closer look at the performance numbers reveals that the unique three-river bottom does best in a bear market, regardless of the breakout direction. However, the sample size is very small,
13 or fewer. In fact, I found only 80 out of over 4.7 million candle lines.
Identification Guidelines
| Characteristic | Discussion |
| Number of candle lines | Three. |
| Price trend leading to the pattern | Downward. |
| Configuration | Look for a tall bodied black candle in a downward price trend. Following that, another black body rests inside the prior body, but the lower shadow is below
the prior day’s low. The last day is a short bodied white candle that remains below the body of the prior candle. |
Three Trading Tidbits
If you want a few bones from my Encyclopedia of candlestick charts book, here are three to chew on. The pages refer to the book
where the tips appear.
- Unique three-river bottom candles that appear within a third of the yearly low act as continuations most often -- page 867.
- Select tall candles for the best performance -- page 864.
- Trade a downward breakout from the candle in a downward primary trend -- page 866.
Example
The unique three-river bottom candlestick appears circled in red on the daily scale. The first candle is a black candle with a tall body. Then
comes another black candle whose body remains inside the body of the first candle but it has a lower low (a lower shadow below the prior day’s shadow). The last candle is a
white one with a short body that is below the body of the second candle in the pattern.
In this example, price is trending lower and the candle appears. The breakout is downward from this unique three-river bottom when price closes below the bottom of it. Since price
moves downward into the candle and exits out the bottom, the candle pattern acts as a continuation of the bearish price trend.
If the downward price trend leading to the candle pattern were longer, say by a few more weeks, then this chart would represent the idea trading setup. Price trends lower into the
unique three-river bottom and the stock breaks out downward. That setup means you should be trading with the trend -- downward.
-- Thomas Bulkowski
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