The Three White Soldier Pattern refers to 3 consecutive candlesticks that open and close above the previous candle high. It’s considered a strong bullish signal after a downtrend or long period of consolidation. Read on and learn more!
How to identify the pattern
This pattern forms over three trading sessions. A general rule of thumb is that the three candles must open above the previous days open. For this pattern to be valid, the second candlestick must be bigger than the first candle’s body. Similarly, the third candlestick should be bigger than the second candle. This means that each candle must establish a new short-term high. Another rule for this pattern is that the second candlestick should leave a small upper wick. Finally, the third candle should have a small or no shadow.
Why the pattern is a strong indicator
Since there are no gaps between the candles, the Three White Soldier is a strong reversal pattern. Sometimes, the three bullish candles could be extremely large which confirms that the prices may have pushed too hard. In such a case, you should wait for a confirmation of the reversal. To be on the safe side, make sure the pattern forms close to a support level. The three white soldier is a reliable pattern when confirmed with strong key indicators like RSI. Of course, there should be solid volume in subsequent sessions. Being a bullish pattern, the sellers should look for an exit point to avoid being caught on the wrong side of the trend.
How to trade the Three White Soldiers
As with all technical patterns, there should be a clear interpretation of the chart. Your goal is to examine the evidence of buying and the potential of a reversal. While the pattern can form in 1-hour and 4-hour time frame, you should rely on daily candles to make an entry. If this pattern appears after a strong downward trend, it could be too risky to enter the market with that indicator alone. The benefit of this pattern is that it’s based purely on price action. Whether you trade the majors or cross currencies, any currency pair can be a good candidate for this reversal pattern.
Once you enter the buy position, you should place the stop loss below the third candlestick low. The take profit should target the previous swing high. When the price moves higher, you should place the stop loss at a break-even point. Alternatively, you can place your buy stop order 5 pips above the high of the third candle. But before you enter the buy position, you should analyze the history beforehand. If the pattern is weak, you can use it as a contrarian entry signal. Learn to take profit halfway before your take profit is triggered.
Can the Three White Soldier Pattern be used by day traders?
Yes. Every day presents many trading opportunities. This is because several factors influence the price of the underlying assets. Candlesticks can help to paint a clear picture of where the market is heading. The white soldier works best when there’s a reversal or a breakout. It’s a powerful tool in your trading arsenal. And because history has a habit of repeating itself, you can use the pattern to anticipate potential pitfalls. No matter the session you trade, you should consider a higher time frame like 4-hour chart. Make sure you master the art of reading the patterns to bolster your profits.
How do you deal with a false bottom? If the pattern appears in a major downtrend, you shouldn’t enter the market blindly. Once in a while, you’ll find false positives so you have to manage the situation carefully. Although the pattern can meet all conditions, it could be weak depending on the size of the candles. A strong engulfing bullish candle is an indication that the market is building towards an upswing. According to market analysts, the reversal pattern works as a bullish reversal 80% of the time. This means there’s a higher chance of breaking upward.
Where to trade using Three White Soldier
Unlike other candlestick patterns, the white soldier works without complex indicators and distractions. If you want to make profits, you should avoid the dead zone. This is where the price action doesn’t give a clear direction. Just wait for prices to enter the red zone and you could easily reap 100 pips in a single day. If the price reaches this area and continues upside, it’s an indication that a strong uptrend could be in sight. Likewise, you can use the pattern in the end zone. At this point, there’s a limited downside move and the prices could be heading for a retracement. The pattern gives a higher probability of success when it forms strong support.
When you spot a shadow on any of the three candles, it shows the battle between buyers and sellers was fought hard. You don’t want to be caught thinking a major pattern is unfolding if you’re dealing with a short time-frame.
Advantages of using Three white soldier
This candlestick pattern is easy to use and gives more detailed information about the market. It packs data for multiple time frames than line charts. The white soldier helps you perform critical trade analysis and trade profitably. It’s a useful indicator of potential trend reversals and is a more effective strategy.
Limitations of using three white solder pattern
The biggest drawback of using this pattern is that it can occur during a consolidation period. This can lead to mixed sentiment, so you can easily get trapped on the wrong side of the market. When there’s low volume, this pattern is suspect. Apart from that, if the pattern occurs on a near-term resistance you should wait for a breakout to initiate a buy position. So every time you use this visual pattern, pay attention to other technical indicators like moving averages, trend lines, bands, and RSI. The white soldier pattern can be useful to short-term and long-term traders.
Key differences between three white soldier and three black crows
The three white solder pattern shows a shift of momentum from bears to bulls while the three black crows show the bears are in control. These two patterns can be used to identify a trend. You can use 3 white solders to make an entry and the black crows to exit your position.
Wrapping it up
When using the Three White Soldier pattern, you should not underestimate the length of the candle. If the third candle is smaller than the second one, that could be a weak signal. Keep in mind that this is a rare reversal pattern, so you have to wait for the right setup.