Three White Soldiers Candlestick Pattern in Trading Explained

What does three white soldiers mean?

Three white soldiers is a bullish candlestick pattern used to predict the reversal of the current downtrend in a price chart. The pattern consists of three consecutive long-bodied candlesticks that open within the previous candle’s real body and a close that exceeds the previous candle’s high. These candlesticks should not have very long shadows and should ideally open within the correct body of the preceding candle in the pattern.

What do three white soldiers say to you?

The three white soldiers candlestick pattern is typically observed as a reversal indicator, often appearing after a period of price decline. This chart pattern indicates a strong change in market sentiment in terms of the stock, commodity or forex pair that is making up the price action on the chart.

When a bullish candle closes with little or no shadows, it indicates that the bulls have succeeded in keeping the price at the top of the range for the session. Basically, the bulls take over the rally all sessions and close near the high of the day for three consecutive sessions. In addition, the pattern may be preceded by other candlestick patterns that indicate a reversal, such as a doji or a hammer.

Here is an example of three white soldiers appearing in a price chart for the VanEck Vectors Fallen Angel High Yield Bond Exchange Traded Fund (ETF).

The ETF was in a strong bearish downtrend over several weeks before the three white soldiers pattern marked a sharp bullish reversal. The pattern may indicate that the rally will continue, but traders should also look at other relevant factors before making a decision. For example, the stock may have reached an area of ​​resistance at the end of the pattern formation or the rise may have been on low volume which is not an indication of strength.

Example of how to trade three white soldiers

Because three white soldiers is a bullish visual pattern, it is used as a potential entry or exit point for a trade. Traders short on security are looking to exit and traders waiting to take a bullish position see the three white soldiers as an entry opportunity.

When trading the three white soldiers pattern, it is important to note that the strong moves higher can create temporary overbought conditions. The relative strength index (RSI), for example, may have moved above 70.0 levels. In some cases, there is a short period of consolidation following the three white soldiers pattern, but the short and intermediate term bias remains bullish. The significant move higher may also reach key resistance levels where the stock may experience a period of consolidation before continuing to move higher.

The difference between three white soldiers and three black crows

The opposite of the three white soldiers is the three black crows candlestick pattern. Three black crows consist of three consecutive long-bodied candlesticks that opened within the right body of the previous candle and closed lower than the previous candle. While three white soldiers catch the momentum shift from the bears to the bulls, three black crows show that the bears are taking control of the bulls. The same caveats about volume and additional confirmation apply to both patterns, although the confirmation of volume is more important in the bullish pattern.

Limitations of using three white soldiers

Three white soldiers can also appear during periods of consolidation, which is an easy way to get caught up in a continuation of the existing trend rather than a reversal. One of the most important things to watch is the volume that supports the formation of three white soldiers. Any pattern on low volume is suspect because it is the market action of the few rather than the many.

To combat the limitation of visual patterns, traders use the three white soldiers and other such candlestick patterns in conjunction with other technical indicators such as trend lines, moving averages and bands. For example, traders can look for areas of emerging resistance before starting a long position or look at the volume level on the breakout to confirm that there was a large amount of dollar volume during the move. If the pattern has occurred on low volume with resistance in the short term, until there is further confirmation of a breakout, traders should initiate a long position.

The Bottom Line

The three white soldiers pattern acts as a strong bullish indicator, often signaling a reversal in a downtrend. However, traders should be careful and confirm this pattern with other technical indicators and volume data to avoid false signals. It is not a standalone tool, but can be highly effective when used in conjunction with other technical analysis methods.