Three white soldiers is a popular candlestick pattern that many traders use in their trading. It is easy to identify and offers reliable insights into the market when used correctly.
Regardless of the trading strategy you are using, being able to read candlestick charts can give you an edge on trading decisions. There are many candlestick chart patterns every trader should know of, and three white soldiers are one of them.
So let’s look at how to identify this candlestick pattern and how to use them in trading to make the best profits.
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What are the Three White Soldiers?
The three white soldiers is a candlestick pattern that forms at the end of a downtrend in the market.
As the name suggests, this pattern consists of three long bullish candlesticks that signal strong buying pressure. When this occurs, buying pressure tends to surpass the selling pressure by a decent margin.
In other words, when this formation occurs, the bulls overtake bears. When bulls are in control of the market, you can see multiple long bullish candles near one another.
So most of the time, the three white soldiers are a pattern that signals the bullish reversal probability in the market.
However, depending on where the pattern forms, this can also act as a continuation pattern.
For instance, if this pattern forms at the end of a bullish market, it can appear as a continuation pattern. However, when the pattern forms at the end of a downtrend, it often reverts to its original bullish reversal state.
So with the correct implementation, three white soldiers can help traders who view the market from a supply and demand perspective to identify the shift in market sentiment.
Characteristics of three white soldiers
To get a better understanding of this candlestick pattern, you must understand the characteristics of the pattern. They are,
- Existence of three long green bullish candles with a large body
- Each of the three candles has relatively similar proportions
- Each candle has small lower and upper shadows
- The low of the middle and last candles can’t go beyond the middle range of the day prior
- The second candle’s closing price should overtake the high of the first candle
- The third candle’s closing price should overtake the high of the second candle
- Each candle’s opening price must be within the height of the body of the candle prior
Pros and cons of three white soldiers
To further extend your knowledge about the three white soldiers, you need to understand both its advantages and limitations.
This can help you to be more aware of the market state and take early precautions to prevent any unfortunate events. With that being said, let’s take a look at the pros and cons of this pattern.
- Easy to identify
Consequent three bullish long green candles are not present in any other candlestick pattern. So the three white soldiers pattern is unique, and therefore it is easier to identify than most candlestick patterns.
High accuracy Out of all the candlestick patterns, three white soldiers tend to be on the more accurate side. The formation of these marks the end of a downtrend and signals the price reversal due to high buying pressure.
This pattern can show this with high accuracy, and with the help of other confirmation methods, traders can further validate the price movement prediction.
- Flexibility of application
The 3 white soldiers pattern works well with both short-term and long-term traders. This allows this candlestick pattern to be a bit more flexible than most other indicator patterns.
- Possibility of generating false signals
Since three white soldiers can provide signals in both short-term and long trades, the possibility of false signals rises. These most commonly appear in middle price range consolidation mode.
- Do not show a complete reversal.
This pattern does not signal a complete price movement reversal in the market. Moreover, it may only signal a pause in the current trend that travels in the same direction.
How to Identify the Three White Soldiers
As we mentioned before, the 3 white soldiers pattern is one of the easier patterns to identify. This is because it comes with three large bullish green candlesticks that open and close progressively higher than the first.
But, identifying the pattern alone is not enough. This is because every instance of this pattern form is not suitable for starting trading.
To understand when to trade and when not to trade, there are a few requirements traders should look for in this type of pattern. Below are the criteria that you should check to understand the tradability of the formation.
Market Context: The three white soldiers must form on a downtrend end or near a key support level. If this candlestick pattern forms in a price consolidation, the reversal signal becomes less reliable. in addition, because the pattern is about to run into a resistance level, the profit margins also become smaller.
Candle sizes: For this to be a tradeable pattern, all three candlesticks must be bold in shape. If the candles of the pattern are larger than the candles in the recent vicinity, it is always a good signal. Moreover, the second and the third candles can’t go over the middle price range of the prior day.
Confirmation of the volume: Finally, if the pattern is to be tradeable, it should also be supported by rising volume. If the market shows an increase in volume to validate the strength of the bulls, that makes it ideal for making a trade. But if the pattern comes with a light volume, it indicates that there are no large buyers.
Important: While you can get a good understanding of the direction and the dominating party of the market, it is wise to use other indicators as well. This helps you to confirm the market direction more accurately.
What do the three white soldiers mean?
When a three-white soldiers pattern forms at the end of a downtrend, it usually means that the downtrend will then follow a steady advance of buying pressure. As with any other bullish pattern, this also shows the high probability of price reversal.
When traders see a three-white soldiers pattern, they can then decide whether to open long or short positions.
But as we talked about earlier, every instance of the three white soldiers pattern is not tradable. Therefore, it is better to confirm the signal and check for the criteria for a tradable pattern.
How to Use the Three White Soldiers pattern to Identify Entry/Exit Points?
Understanding the entry and exit points is crucial if you want to become a successful trader and make accurate trades.
With the help of the three white soldiers pattern, traders can easily understand when to enter and when to exit a trade.
There are two approaches to planning entry and exit, and they are,
- When the highest price of the three green candles is broken, a buy position opens
- Buying the pullback
In scenarios like this, the 3 white soldiers are used to opening a long position and maintaining it. In the meantime, the traders who were on the current downtrend can use the price reversal shown by the pattern as an exit point. As for bears in the market, they tend to liquidate their short positions when this pattern forms.
What follows the three white soldiers is a significant move higher that has a high probability of leading the market to an overbought state.
In scenarios like this, the price trends inside a consolidation. That allows traders who are interested in buying the pullback to act. If you want to know more about the overbought stats, use technical indicators for better insight.
Risk management when trading with three white soldiers
Risking more than what you can afford is never a good thing. So to be a successful trader, one must master the art of risk management in trading. The forex market tends to be a place with the high volatility that comes with high risks. So you must have good risk management tactics in place.
With proper risk management tactics, traders can avoid unwanted expenses and increase financial stability and financial security.
One of the sacred rules inside the forex market is the one that states, “don’t risk more than 2% of your portfolio in any trade”. Usually, the stop losses tend to be larger when the three white soldiers are in consideration.
Even if the market is in your favor, a small trend can change everything. If the market goes against you in a risky trade, you will have bigger consequences. To avoid scenarios like that, always make sure to trade when the candlestick pattern offers you at least a 1:2 risk-to-reward ratio.
Three White Soldiers vs. Three Black Crows
The three black crows are the opposite of the three white soldiers’ pattern. While the 3 soldiers forms at the end of a downtrend, the three black crows forms at the end of an uptrend.
Similarly, while the 3 soldiers indicate a trend reversal from bearish to bullish, the three black crows indicate a trend reversal from bullish to bearish.
From a visual standpoint, the 3 soldier pattern comes with three long green candles, while the 3-crow pattern comes with 3 consecutive red candles.
However, both of these patterns have relatively same-size candles that have small upper and lower shadows.
Another similarity between the two patterns is that the second and last candle highs don’t go over the middle range of the prior candle.
When traders come across the bearish three-black crow pattern, they know that there is a high probability of a period of powerful selling pressure on the market. The main reason for it is the three black crows’ pattern’s prediction of the reversal of an uptrend.
Start trading with Three White Soldiers.
Now you should have enough knowledge about the three white soldiers’ pattern to know its importance and its usage. So now all you need is a reliable forex broker that you can use your knowledge on. This is where Icon FX comes in.
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In a price chart, three white soldiers is a bullish candlestick pattern that predicts the reversal of the present downtrends, which you can use to enter into or exit a trade.
Bulls can use this formation to enter into trades and maintain them, while bears can use this indication to exit trades.
Technical analysis is one of the best ways to get an accurate prediction of future market price movements, and candlestick charts are one of the biggest parts of technical analysis. Among the candlestick patterns, the three white soldiers is a pattern that forms at the end of a downtrend.
With the correct implementation, you can identify an upcoming price reversal due to the heavy buying pressure on the market. With such insights into the market, you are able to make better traders earn high profits.
If you feel like brushing up your knowledge more on the three white soldiers pattern, do your own research and use this article as its base. Having more knowledge on a topic that can bring you profits is never a bad thing.