Three River Bottom | RizeTrade

What is the Three River Bottom Candlestick Pattern?

The Three River Bottom is a bullish reversal candlestick pattern that appears at the end of a downtrend, signaling a potential shift from bearish momentum to bullish control. It’s a three-candle formation that demonstrates weakening selling pressure and the early presence of buyers stepping in at lower prices.

Here’s how the pattern forms:

1. First Candle: A long bearish candle that confirms the continuation of the downtrend.

2. Second Candle: A hammer-like candle (small body with a long lower shadow) that makes a new low but shows buying strength by closing above its low.

3. Third Candle: A small bullish candle that closes above the second candle’s close, confirming that buyers are gaining control.

🔑 Key Takeaways

 📉 The Three River Bottom is a bullish reversal pattern that forms after a sustained downtrend.
 🕯️ It signals a gradual shift in sentiment from aggressive selling to cautious buying.
 ✅ The second candle’s long lower shadow indicates sellers are losing strength.
 🎯 The third candle closing above the second’s confirms bullish reversal potential.
 💪 Reliability increases when it forms near support levels, oversold RSI, or Fibonacci retracement zones.

🔍 How Reliable Is the Three River Bottom Pattern?

The Three River Bottom is one of the earliest documented bullish reversal patterns — but how consistently does it identify market turning points in today’s trading environments?

🧪 Our Backtest Setup

Statement:
We conducted an extensive internal backtest using our Candlestick Pattern Performance Matrix to assess the reliability of the Three River Bottom across multiple markets and timeframes.

Evidence:

• 1,011 instances tested across stocks, forex, and crypto assets

• Timeframes: 1-hour, 4-hour, daily, and weekly

• Evaluated under both ranging and trending market conditions

Insight:
The testing focused on identifying how effectively this three-candle pattern signals a bullish reversal following a sustained downtrend, both on its own and with key confirmations.

📈 Backtest Results

Statement:
While the Three River Bottom showed moderate standalone reliability, its accuracy increased notably when paired with technical confirmation signals.

Evidence:

Insight:
Adding RSI bullish divergence, support-level validation, or a volume uptick improved reversal accuracy by 8–10 percentage points.
For traders aiming to refine entry timing, reviewing performance across past trades can help pinpoint where these confirmations provide the strongest reliability.

📈 How to Trade the Bullish Three River Bottom Pattern?

This three-candle reversal pattern reveals selling exhaustion and early accumulation — signaling that bearish momentum may be giving way to fresh buying strength.

🔍 Entry

Look for a clear downtrend followed by the three-candle formation:
1️⃣ A long bearish candle,
2️⃣ A small-bodied candle with a long lower wick, and
3️⃣ A small bullish candle closing above the prior close.
Enter long when price breaks above the third candle’s high or after a confirming bullish close above the pattern.

🛡️ Stop-Loss

Place your stop just below the lowest point of the second candle’s shadow, marking the final exhaustion low of the sell-off.
This safeguard limits exposure if downward pressure resumes.

🎯 Target

Set the initial target near the next resistance zone or previous swing high for a realistic rebound goal.
Traders may also apply a 2:1 or 3:1 reward-to-risk ratio, while trend followers can trail stops using a 10–20 EMA to ride sustained upside momentum.

Trading Strategies that Use the Three River Bottom Pattern

Three River Bottom + RSI Oversold Confirmation

Concept
This setup pairs the Three River Bottom pattern with an oversold momentum signal to confirm exhaustion within a downtrend. The RSI helps identify when selling pressure is near its limit.

Setup
Apply RSI (14) to your chart and look for readings below 30 as the pattern forms, signaling oversold conditions.

Long Setup
Enter long when price breaks above the third candle’s high.
Stop Loss: Below the second candle’s low.
Take Profit: Near the previous resistance level.

What Gives It an Edge
Combining a clear reversal pattern with oversold confirmation filters out false signals and aligns entries with early momentum shifts.

Three River Bottom + Volume Confirmation

Concept
Volume adds credibility to reversal setups by showing where buyers are stepping in. A volume increase during the last two candles suggests accumulation and potential trend change.

Setup
Monitor volume spikes during the second and third candles. A rise in volume on the third candle validates the shift from selling to buying pressure.

Long Setup
Enter long on a breakout above the third candle’s high.
Stop Loss: Below the second candle’s low.
Take Profit: At the next resistance zone or 2:1 reward-to-risk target.

What Gives It an Edge
Volume confirmation helps distinguish genuine reversals from weak bounces, improving trade reliability and confidence in follow-through.

Three River Bottom + Moving Average Filter

Concept
Adding a moving average filter helps align reversal setups with broader momentum shifts. The pattern signals the turn, while the EMA confirms trend recovery.

Setup
Add a 20-period EMA to your chart. Wait for the pattern to form below the EMA, then look for a close above the EMA to confirm strength.

Long Setup
Enter long when price closes above the EMA following the pattern.
Stop Loss: Below the pattern’s low.
Take Profit: At the next significant resistance or use a trailing stop as price advances.

What Gives It an Edge
Using an EMA filter ensures trades follow emerging momentum instead of fighting potential continuation of the downtrend.

Real Trading Example: Advanced Micro Devices (AMD)

Context
AMD had been in a steady decline, falling from $132 to $121.

Price Behavior

• Day 1: Large bearish candle closes at $122.

• Day 2: Small candle with a long lower shadow dips to $120.20, then closes at $122.50, hinting at selling exhaustion.

• Day 3: Small bullish candle closes at $123.80, confirming buyer strength.

Trade Setup

• Entry: Above $124 (third candle’s high)

• Stop Loss: Below $120 (second candle’s low)

• Take Profit: Around $128–$130 (previous resistance zone)

This trade offered a 2:1 reward-to-risk ratio, confirming a moderate bullish reversal.

Best Indicators to Combine with the Three River Bottom Pattern

Common Mistakes and How to Avoid Them

Entering Too Early
Wait for the third candle to close before confirming the pattern.

Ignoring Trend Context
Avoid trading this setup in sideways or range-bound markets; it performs best after clear declines.

Misidentifying the Second Candle
Ensure the second candle has a long lower shadow, reflecting exhaustion and rejection of lower prices.

Tips for Trading the Three River Bottom Pattern

• Combine the pattern with support zones and RSI oversold readings for stronger setups.

• Avoid low-volume reversals, as they often fail to hold.

• Stay patient — wait for a confirmed breakout above the pattern’s high before entering.

🕯️ Three River Bottom vs. Three Inside Up: Which Reversal Is Stronger?

Both Three River Bottom and Three Inside Up patterns mark potential bullish reversals — but their momentum profiles tell very different stories.

🧩 Pattern Structure

Three River Bottom

• Candle 1: A large bearish candle continues the downtrend.

• Candle 2: A hammer-like candle forms, showing the first signs of buyer defense.

• Candle 3: A small bullish candle closes higher, confirming early reversal momentum.

Three Inside Up

• Candle 1: A strong bearish candle sets the stage.

• Candle 2: A bullish engulfing of the first candle’s body signals aggressive buying.

• Candle 3: A decisive bullish candle closes above prior highs, confirming a trend shift.

📊 Internal Backtest Overview

Statement:
We tested both patterns across major forex pairs on the 4H timeframe to measure how each performed as a reversal trigger.

Evidence:

Insight:
The Three Inside Up produced a faster and stronger reversal, reflecting its decisive momentum shift.
In contrast, the Three River Bottom showed a more gradual recovery, often requiring multiple candles for confirmation — a better fit for traders seeking early but conservative reversal signals.

Traders reviewing their performance over time can identify which setup aligns better with their risk tolerance and market timing approach.