What it means
Candlestick charts show the open, high, low and close of each trading period. A doji has a tiny body because the market opened and closed at nearly the same price, which suggests that buyers and sellers were evenly matched.
The tri-star needs three of these in a row. In a bullish version, the middle doji gaps below the first and third, forming a small island at the bottom, while in a bearish version the middle doji gaps above them at the top of a rise.
The pattern matters because it shows indecision at the end of a move. After a strong trend, three periods of balance and a gap suggest that the sellers, or buyers, may be running out of strength.
It is also very uncommon, particularly on daily charts, because three doji in a row with the right gaps rarely happen. Because of this, traders sometimes see patterns that do not meet the strict definition.
As with other patterns, it should not be acted upon alone. Traders usually wait for confirmation, such as a strong candle in the new direction or a rise in trading volume, and place a stop-loss order (an instruction to sell if the price moves against the position).
Like most technical patterns, its reliability is debated. Supporters say it reflects real shifts in market psychology, while critics argue that patterns can be found in any chart after the fact and that they do not give a lasting edge.
In practice
Real-world examples.
Example
A share has fallen for two months, and then three small doji candles appear with the middle one gapping below the others. A trader sees a possible bullish tri-star and waits for a higher close before buying.
Example
A currency trader spots three doji at the top of a long rally in an exchange rate. The middle one gaps up, so she tightens her stop-loss and prepares to take profits.
Example
A student scanning a chart finds a pattern that looks like a tri-star but has one candle with a large body. The instructor explains that it does not meet the definition and should not be treated as a signal.
Formula
Calculation
A simple rule for a doji is that its body is a small fraction of the full range of the candle:
Doji if Absolute value of (Close - Open) is less than or equal to 10% of (High - Low)
Suppose an illustrative share trades between $48.00 and $50.00 in a day, a range of $2.00, so the body limit is 10% x $2.00 = $0.20. If it opens at $49.10 and closes at $49.20, the body is $0.10, which is within the limit, so the candle counts as a doji. The tri-star needs three of these in a row, with the middle one's range sitting entirely above or below the ranges of the first and third.Case study
Seen in the real world.
Falconridge Trading Desk is an illustrative, fictional group of traders who review charts each morning. One analyst flagged what looked like a bullish tri-star on the chart of an industrial share that had fallen for ten weeks.
The head trader reminded the team that the pattern is a clue, not a guarantee. They agreed to buy only if the next day closed above the highest point of the pattern, and to place a stop-loss $1.50 below the lowest low, which limited the loss to about 3% of a purchase price near $50.
The share closed higher the next day and the team entered the trade. In this illustrative case the share rose about 9% over the following three weeks, but the head trader noted that the same discipline would have limited the loss if the signal had failed.
Watch out
Common mistakes.
- Calling any three small candles a tri-star, when the pattern needs three doji with a gap on the middle one.
- Trading the pattern without waiting for confirmation, which raises the risk of false signals.
- Forgetting that the pattern needs a prior trend to reverse, since it has little meaning in a sideways market.
Questions
People also ask.
What is a doji?
A candle where the opening and closing prices are nearly equal, showing indecision between buyers and sellers.
Is the tri-star reliable?
It is rare and, like all technical patterns, can fail, so it is best used with other evidence and strict risk limits.
What is the difference between a bullish and bearish tri-star?
A bullish one forms after a fall and gaps down in the middle, while a bearish one forms after a rise and gaps up.
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