3 White Soldier Pattern: How to Spot a Bullish Reversal

Trading in the crypto market comes with its own set of technical requirements. Because of its high volatility and unpredictability, investors need to understand how chart analysis works. One key chart analysis tool that traders turn to is the 3 white soldier pattern. This popular candlestick pattern often depicts a potential upside in an asset’s price. Essentially, it indicates the start of a bullish trend reversal and can be a valuable strategy that traders can use to capitalize on changing market trends.

In this article we will explore what the 3 white soldiers pattern is all about and how you can use it.

What is the 3 white soldiers pattern?

The 3 white soldier concept is a reversal pattern strategy that depicts the beginning of a potential uptrend in the price of an asset. The pattern consists of three large green candles that open and close higher than the preceding ones. This pattern is likely to occur after a swing low. Furthermore, it is common for the candlestick chart to form little or no fuse. The absence of wings highlights the intense buying pressure from investors, who continue to buy an asset above its previous closing price action.

The three white soldiers candlestick pattern often forms at the bottom of a downtrend, where the market reverses. But it can also manifest after a period of price consolidation.

Why is this important for traders?

The 3 white soldier pattern is one of many trading strategies that can indicate a possible uptrend. This trading pattern is crucial to traders for a number of reasons. First, it occurs at the end of bearish market trends and can act as a clear signal for an uptrend.

By identifying this unique bullish pattern, traders can better track the future tone of the market, as the pattern normally indicates that buying pressure is stronger than selling pressure.

Second, it can be used for entry or exit positions.

For short sellers, the pattern will act as a signal to exit and close positions. Additionally, traders can also open long positions and enter the market following a sustained downtrend. This way, traders can capitalize on the trend reversal and profit on the uptrend

How to recognize the pattern on a chart?

The easiest way to identify a 3 white soldier pattern on a trading chart is by focusing your attention on long periods of downward price action. This is because the pattern tends to indicate a trend reversal. Investors can look for a swing low followed by a series of three candles that close above the high of the previous one. Once the three major patterns are formed, traders are aware that a possible bullish trend is imminent.

To determine whether a bullish reversal is imminent, traders can look through a set of key variables. These are:

The first thing to look for is a swing low – this occurs when the price of an asset drops, which is immediately followed by two consecutive higher lows. After this, three green candlesticks are formed at the bottom of a downtrend. The candlesticks are arranged in an ascending sequential order. Each candlestick has either a very small wick or none at all. Each candlestick’s price closes above the high of the previous candle.

Examples of the 3 White Soldier pattern in the market

There are a number of cases that can lead to the formation of a 3 white soldiers pattern. The most common occurrence is at the end of a downtrend. In this case, the first candlestick with a small wick will form. This is a potential signal for the start of the second candlestick.

The second candle forms at the point where the first candle closes. Once the second candlestick depicts its structure, the third follows in similar fashion.

A good example of the three white soldiers pattern can be seen on the BTC/USD chart on February 15, 2023, which ushered in a huge bullish run. In the price action of that trading pair, the previous candlestick was bearish and traded down. This was before the introduction of the 3 white soldiers pattern. Once this pattern is formed, a sharp bullish reversal begins to appear.

The subsequent price action after the 3 white soldier pattern was very bullish. The third candlestick enables a breakout of the support and resistance price of $21,254 and $22,266.9. Further confirming this trend reversal, the relative strength index (RSI) is turning towards the overbought figure of 72.10. This shows a significant amount of buying pressure building up on the asset.

The introduction of the 3 white soldier pattern usually allows traders to prepare for a potential end to a downtrend. However, this is not always the case so please be aware of that. To identify a reversal to the upside, it is essential that you connect the three soldiers pattern with indicators such as the RSI, MACD and trading volume.

What does the 3 white soldiers pattern mean?

The pattern of 3 white soldiers identifies periods in which a trend reversal is likely to occur. The market indicator is effective in pointing out the gradual end of the bears and the return of the bulls.

A sharp contrast to this trading pattern is the three black crows. The 3 black crows indicate the beginning of a bearish market trend. This is shown by each candlestick closing lower than the others in a sequential pattern. Both market indicators are very useful tools that traders can turn to when they need to gauge general market sentiment.

When should traders use the pattern?

3 white soldier is one of the most effective trading strategies in the stock and crypto markets. However, it is not infallible and should not be traded in isolation. The trading pattern should be used in conjunction with other variable metrics such as:

As we pointed out earlier, market structure is very important. As we mentioned above, this pattern tends to be on the tail end of a downtrend. It can also form near a key support position, but not before. The pattern can be unreliable if it occurs during a broader market consolidation phase. Buying the asset during this period can lead to potential losses once the trend reverses. Moreover, the bullish trend can easily disappear as it operates in a tight consolidation line of the broader market. It may see it hit a major resistance line and look for support at a much lower level.

Trading Volume Confirmation

One of the most beneficial times to use a 3 white soldier pattern is when the trading volume is relatively high. An increasing trading volume gives a perfect snapshot of the overall performance of an asset. If the asset’s volume rises and forms a pattern, the chance of a trend reversal is significantly higher than otherwise.

How to combine the pattern with other indicators for better results

3 white soldier pattern is not particularly effective alone. The best way to utilize this trading strategy’s potential is to use it simultaneously with other key market indicators.

The most important one used in sync with the technical analysis tool is the RSI. This is because the RSI tracks the speed and momentum of the market. Once a 3 white soldiers event is triggered, the RSI usually depicts this by rising to the overbought region.

Limitations of the 3 White Soldier Pattern

The 3 white soldier pattern is an effective technical analysis trading strategy. However, it has its own problems.

The first is the fear of missing out (FOMO) effect it portrays.

If you take a closer look at the pattern, it only works once the third and highest candlestick is formed. This usually indicates a potential strong buying pressure.

Traders entering a long position will have to buy at a higher price. They then hope that the price continues to rise in order to make a profit. Although reasonable, the market can easily follow his steps, leaving the trader with losses.

Frequently Asked Questions

What does 3 white soldiers mean?

3 white soldiers is a set of Japanese candlestick patterns that indicate a bullish reversal after a strong bear market. These are three green candles consecutively following each other in an army-like position.

What are 3 White Soldiers in Uptrend?

3 white soldiers are typically signals for the start of an uptrend. They help signal the beginning of a bullish reversal, as they always come at the end of a downtrend.

How bullish are three white soldiers?

3 white soldiers is a tripod of green candlesticks that are rising higher and higher than the previous price. They are arranged together and always indicate an impending trend reversal.

Is the three white soldiers pattern reliable?

3 white soldiers can be a key trend reversal indicator when combined with other indicators such as RSI. The switch of the RSI from a lower momentum to a high can signal the start of a bull run.