Once the first bullish candle closes, another bullish candle occurs with a big body that emerges and closes above the previous high. The formation of the third bullish candle that closes above the second candle affirms the three white soldiers pattern. The three white soldiers pattern is a bullish reversal pattern that signals a possible reversal.

1. The stock had a minor pop back up to the downtrend line only to drag lower into the close.
2. Candlestick patterns and technical analysis, in general, are evolving however, and the Three White Soldiers may be used as an example of such evolution.
3. Here is an example of three white soldiers appearing in a pricing chart for the VanEck Vectors Fallen Angel High Yield Bond exchange-traded fund (ETF).
4. These wicks tell traders that the bulls have managed to keep the price of an asset close to the height of its ranges for the given period.

Still, analyzing and scrutinizing the market data and patterns we see, is a great exercise that will help you to enhance your understanding of the moves of the market. If you look carefully enough, you will soon start to notice recurrent patterns that get your attention, which have the potential to become a new trading strategy. However, there’s always the risk that a three white soldiers will fail.

Volume Trading and the Three White Soldiers Pattern

Similarly, if you’re looking for an entry point, the occurrence of the Three Black Crows pattern after a bullish runup indicates a solid time to enter a short trade. All markets have varying levels of volatility, which often has a huge impact on the reliability of patterns like the three white soldiers. Some strategies will thrive in high volatility settings, while the opposite will be true for other patterns. As such, most people are hesitant about entering the market, and remain either in cash, or in short positions. Now, it might be very hard to know the exact reasons behind a certain move.

Risk management with the three white soldiers

And by the time the Three White Soldiers pattern is completely formed, the price is likely to be near a resistance zone from where it might turn around. Three White Soldiers in a downtrend can simply be a reaction/pullback after a down leg before the price goes even lower. Discover the range of markets and learn how they work – with IG Academy’s online course. We want to clarify that IG International does not have an official Line account at this time.

This indicator can help you to predict price trends because it tracks the speed and momentum of the market. If the reversal is confirmed, you may want to open a long position (buy). Such behaviour may lead to a temporary price drop, but candles forming the pattern create a support area which should rescue the market. In fact, three long white candles in a row having every subsequent closing price higher indicate that the bulls are in control of the market. Ideally, the second candle’s body should be slightly bigger than the first, which is a more powerful signal that a bullish reversal is underway.

Candlestick Pattern

Like many other advanced candlestick chart patterns, the three white soldiers candle pattern on its own might not be sufficient to indicate a trend reversal and enter a buying position. With most candlestick patterns, one trader may see a bullish setup, while another may see bearish signs. For this reason, it is imperative to qualify the context of the candlestick patterns before making a trade. Because of this potential ambiguity, it is important to look for additional chart confirmation of the bullish reversal.

Candlestick patterns are some of the most important tools in technical analysis. The patterns stand out as they provide valuable information about what happened in a given trading session. Their alignment also provides valuable information on prevailing market sentiment, and the direction price is likely to move. For example, three White Soldiers is one important candlestick pattern commonly used to predict reversals. In addition, the pattern is widely used to analyze stocks, currencies, and commodities. The Three White Soldiers pattern is a popular bullish candlestick pattern.

Below is an example of the three white soldiers’ pattern on the AUD/USD 1H chart. No trading tool or indicator is perfect and understanding the pattern’s limitations will help you decide whether it fits your personality or not. Every day, there is a fierce battle of prices between bulls and bears.

The Three White Soldiers Pattern as an entry or exit signal

Many Japanese candlestick patterns come in pairs, and Three White Soldiers is no exception. The opposite pattern is Three Black Crows, illustrated by a set of three red candlesticks indicating a downward market trend. In direct contrast to Three White Soldiers, Three Black Crows is a bearish signal that emerges as a bull market is about to enter three white soldiers pattern a reversal. The three white soldiers is one of the most reliable trend reversal patterns. Based on studies, the bullish reversal pattern provides s accurate signals 80% to 90% of the time. Consequently, when the three bullish candles occur, there is always an 80% probability that the price will reverse course and start moving higher.

The same caveats about volume and additional confirmation apply to both patterns, though confirming volume is more important in the bullish pattern. In the past, some authors required that the opening price of the second and the third line should be located at least halfway up of the previous candle’s body height. Others required that the closing prices shall be located near the candle’s high, that is that the candles should have very short shadows. Candlestick patterns and technical analysis, in general, are evolving however, and the Three White Soldiers may be used as an example of such evolution. As with many other candlestick patterns, the volume is another consideration.

Three White Soldiers Candlestick Pattern (The Essential Guide)

Consequently, technical analysts rely on momentum indicators to ascertain whether the momentum has changed from bearish to bullish. The pattern indicates weakness in the long-term downtrend and the potential emergence of an uptrend as the bear’s exit the market. It also implies that bears are exiting the market after pushing prices lower and reaching a point of strong support. The candles must also have big bodies and small wicks, affirming a buildup in buying pressure with the entry of bulls into the market.

Okay, once you’ve confirmed the pattern is a bullish trio of white soldiers, you’re ready to place a long position. And your stop loss should be placed just under the lowest height of the pattern. This will mitigate the potential losses should the reversal fail to materialize. The opening price should be within the real body of the second candlestick most preferably between the midpoint and closing price of the second candlestick. Then, stop loss could be placed at the lowest level of the first candle or the 0.0% Fibonacci level (which is the lowest level of the previous price range).

It is fairly easy for most traders to spot in real time given the 3 large range successive candles. In this post we’ll discuss the context, requirements, and a free video on how to trade this pattern. The ETF had been in a strong bearish downtrend over the course of several weeks before the three white soldiers pattern marked a sharp bullish reversal. The pattern may suggest that the rally will continue, but traders should also look at other relevant factors before making a decision.

Taking the above example, the entry-level would be at the closing price of the third candle (as the market trades above the 78.6% Fib level). Then the Three White Soldiers pattern formed and Price displayed signs of strength. This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result.

Finally, a take-profit order is placed at the highest level of the previous trend or at one of the following Fib levels. Strong bullish candles emerged from the contraction showcasing signs of strength. You can practise trading using the three white soldiers pattern with an IG demo account.

By signing up as a member you acknowledge that we are not providing financial advice and that you are making the decision on the trades you place in the markets. We have no knowledge of the level of money you are trading with or the level of risk you are taking with each trade. Two of the most effective indicators to confirm trend reversals are the Relative Strength Index (RSI) and the Stochastic oscillator. In essence, these technical analysis tools indicate overbought and oversold areas and thus, may help you to identify a potential reversal zone. For example, if you see three white soldiers at the bottom of a downtrend and you think a reversal is coming, you can test the signal using the RSI.

While the three white soldiers is not common in charts, it is a more reliable pattern as the reversals that occur hold 80% of the time, allowing traders to profit from an emerging uptrend. In addition, the pattern provides accurate results when used with other technical indicators such as the relative strength index https://1investing.in/ and stochastic and moving averages. In addition, it is important to use the pattern to make a trading decision in combination with other technical indicators. For instance, the relative strength index will provide valuable information on whether the price is likely to continue moving up once the patterns occur.