What is Three White Soldiers Candlestick Pattern : How to Trade it

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  • 10 Nov 2023
What is Three White Soldiers Candlestick Pattern : How to Trade it

Key Highlights

  • Three white candles rising in a row define the Three White Soldiers Candlestick Pattern, a bullish continuation pattern.
  • It suggests that the current rise may be followed by an upward price movement.
  • This pattern is used by traders to predict when downtrends may reverse.
  • For confirmation, it is important to take into account the size of the candles and shadows.
  • It is advised not to place aggressive buy orders.
  • A Doji may follow the pattern, indicating a possible reversal of the trend.

Candlestick three white soldiers, also known as a long-legged doji, a Three White Soldiers candlestick pattern consists of a long white candlestick followed by two smaller black candles. The absence of an upper shadow on any of these candles is the primary distinction between a long-legged Doji and other typical candle designs.

Three bullish candles in a row, each with a comparatively lengthy upper shadow and a tiny lower shadow, make up this pattern. The name comes from a folktale from Japan about three soldiers who show up on a battlefield after everyone else has given up on victory. Similar to these troops, these candlesticks indicate a change in previously unfavourable market conditions.

Three White Soldier candlesticks are used by traders in technical analysis to forecast breaks in downtrends. There are three White soldiers seen along either an upward or downward trendline. Its appearance during an upswing denotes waning share demand, which typically heralds a turn in the other direction towards lower prices or perhaps a complete reversal into a downtrend. Three White Soldiers candlesticks are, in general, seen as bearish when they emerge in declining markets and bullish when they emerge in rising markets.

Three white Soldiers candlestick pattern are seen as a trustworthy sign of a reversal of trend.

Three long-bodied candles represent a slow ascent; each candle's opening and shutting are higher because they are contained within the body of the one before it. It implies a significant shift in the trend. To completely rule out the possibility of a pullback, traders must take into account the magnitude of the candles and shadows. A candle without a shadow indicates that the price closed at the upper range, indicating that the bullish trend held sway.

The three white soldiers candlestick pattern typically follows a Doji, indicating a potential reversal of the trend.

Recognizing Three White Soldiers on a Trading Chart:

Initiating Candle: The pattern begins with a white candle in a prevailing downtrend, indicating a potential shift in market sentiment.

Body Overlap: The body of the second candle encompasses the opening of the preceding one, signifying a strong upward momentum.

Higher High: The third candle rises even higher than the opening of the second candle before eventually closing above it. This demonstrates a sustained upward push.

Comparison with Three Black Crows: In contrast to the bearish pattern of three black crows, the three white soldiers represent a bullish reversal. In Japan, they are referred to as three red soldiers, reflecting their potential for market upturn.

Market Takeover by Bulls: This pattern implies a shift in control from bears to bulls, suggesting that traders might want to consider opening a long position.

The Three White Soldiers pattern is a bullish continuation pattern seen after an upward price trend.

  • To trade this pattern, follow a three-step approach:

Confirm and identify the pattern. Place a buy order. Set a stop loss.

  • Avoid placing buy orders at the extremes (top or bottom) of the pattern, as these tend to have a higher failure rate.

  • Look for confirmation of new highs/lows before entering a position.

  • Long positions can be initiated when three consecutive white candlesticks with strong bodies appear after a downtrend, or when five consecutive bullish candlesticks form, regardless of color.

  • The Three White Soldiers pattern is considered a bullish reversal pattern, indicating a higher likelihood of prices continuing to rise after its formation.

  • Viewing the Three White Soldiers as a buy signal is recommended, while a fourth or subsequent long white candle may present a weaker selling opportunity at best, and potentially signify an outright reversal at worst.

Similar to other chart patterns, three white candles might not be enough to signal a significant shift in the market. Because the top shadow is essentially absent and there are three successive rising candles, the pattern is seen as an upward trend reversal. It may also occur following a brief period of consolidation, though.

Long-bodied candles suggest an excessively strong upward pull, which might be the result of traders overbuying and forcing the market to turn too quickly at the beginning of a trend reversal. It is vital to validate using other trading tools and via the volume of following sessions due to these uncertainties.

Conclusion

A trader's toolkit should include an understanding of candlesticks, as it is essential to make profitable trades. Having a firm grasp of candlestick patterns is crucial for investors and day traders alike. Equipped with that understanding, you'll be able to recognize these patterns and determine if they indicate a bullish or bearish trading opportunity.

FAQs on Three White Soldier Candlestick Pattern

The trading approach involves three steps: confirm and identify the pattern, place a buy order, and set a stop loss. Avoid placing orders at extremes and seek confirmation of new highs/lows.

Enter long positions when three consecutive white candlesticks with strong bodies appear after a downtrend or when five consecutive bullish candlesticks form, regardless of color.

It suggests a higher likelihood of prices continuing to rise after its formation, making it a bullish reversal pattern.

Placing orders at extremes (top or bottom) tends to have a higher failure rate. It's advisable to wait for confirmation of new highs/lows before entering a position.

Set a stop loss to limit potential losses. This is an important step in the trading approach to protect your capital.

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