Three White Soldiers Candlestick Pattern

The Three White Soldiers pattern is a candlestick pattern widely known as a “bullish” reversal pattern. It is used in technical analysis to spot potential buying opportunities. This pattern forms when three consecutive long bullish candles signal a strong upward trend on the trading chart.

Traders view this pattern as a reliable bullish reversal signal because it shows buyers gaining control over the market and driving prices upward. However, this pattern is not foolproof, and traders are advised to combine it with other technical and fundamental analysis tools to confirm the trend.

This blog will guide you in understanding the three white soldiers pattern, how to identify it, how to use it and its limitations.

What is the Three White Soldiers Candlestick Pattern?

The three white soldiers’ candlestick pattern predicts the reversal of a prevailing downtrend on price charts. This pattern comprises three successive long-bodied candlesticks that open within the real body of the previous candle and close near or above the prior candle’s high.

These candlesticks typically have short shadows and are ideally open within the real body of the preceding candle in the same sequence.

How to Trade Three White Soldiers

Here is a three white soldiers pattern example to understand how to trade using it:

Assume the stock of ABC Ltd has been in a downtrend for a few weeks. You notice the formation of Three White Soldiers candlestick pattern after a sharp decline.

Step 1: Confirm and Identify the Pattern.

• The first candle is a strong bullish candle, closing well above its opening price, indicating a potential reversal.
• The second and third candles are also bullish, with each closing higher than the previous one, showing sustained buying pressure.

Step 2: Place a Buy Order

• You wait for confirmation that the pattern is complete.
• Once the third bullish candle closes, you place a buy order just above the closing price of the third candlestick.

Step 3: Set a Stop Loss

• To manage risk, you set a stop loss just below the pattern’s first candle’s low or just below a recent support level.

Step 4: Confirmation and Follow-Through

• After placing the buy order, you closely monitor the stock for signs of continuation.
• If the stock rises, you let the position run, adjusting your stop loss upwards as the price increases.
• If the stock shows signs of reversal, such as a large bearish candle or price falling below support, you exit the position early to book profits.

In this example, the Three White Soldiers pattern functions as a buy signal, implying that the price will likely keep rising. Nevertheless, practising good risk management and confirming the trend with other tools is crucial before entering any trade.

Conditions of Trading Three White Soldiers Candlestick Pattern

Here are the conditions to identify the Three White Soldiers candlestick pattern on charts:

Condition 1

• The first candlestick continues the existing downtrend.
• It is a bullish candlestick, meaning the closing price must be higher than the opening price.
• This signals that the bulls have regained control of the price movement.

Condition 2

• The second candlestick must also be bullish.
• Its opening price should be within the real body of the first candlestick, ideally between the midpoint and closing price of the first candle.
• The closing price of the second candlestick should be higher than the closing price of the first candlestick.

Condition 3

• The third candlestick must also be bullish with little to no shadow.
• Its opening price should fall within the real body of the second candlestick, preferably between the midpoint and the closing price of the second candlestick.
• The closing price of the third candlestick should exceed the closing price of the second candlestick.

These conditions indicate a strong bullish reversal, with each candlestick reinforcing the upward momentum from the previous one.

How to Identify the Three White Soldiers Pattern?

The Three White Soldiers candlestick pattern is a strong bullish formation of three consecutive candles. Each candle opens and closes higher than the previous one.

Here’s how to identify the pattern:

• Candle 1: The first candle opens with a bullish move, closing near its high.
• Candle 2: The second candle opens higher than the previous close and continues the bullish trend, closing near its high.
• Candle 3: The third candle also opens higher and closes near its high, confirming the strength of the upward momentum.

For the Three White Soldiers pattern to be confirmed, each candle’s opening and closing should be higher than the previous one, indicating the dominance of bulls. This pattern signals a potential uptrend, making it a key indicator for traders. It highlights a shift in market sentiment and suggests that the price may continue rising.

Difference Between Three White Soldiers and Three Black Crows

Three Black Crows is a pattern which is totally opposite of the three white soldiers and must not be confused. Hence knowing the difference between both becomes very important. The table below discusses the major differences between the two.

Limitations of Using Three White Soldiers

Here are a few limitations of Three White Soldiers candlestick pattern:

• Over-reliance: Relying only on the Three White Soldiers pattern without factoring in other aspects is incorrect. It may overlook important market factors or fundamental analysis and give a wrong signal.
• False Signals: Not all the Three White Soldiers pattern occurrences imply strong bullish market trend. If traders work only on this pattern basis, false signals may be generated, resulting in losses.
• Market Volatility: Market volatility can reduce the efficiency of this pattern. Price fluctuations can disrupt the pattern’s bullish signal, causing ambiguity and potential losses.
• Need Confirmation: Using only Three White Soldiers can result in an incomplete analysis. Other technical indicators or chart patterns are frequently employed to confirm the signal to increase its credibility.

Conclusion

The candlestick pattern of three white soldiers indicates a strong bullish signal. It typically marks a reversal in a downtrend. However, traders should be cautious and confirm this pattern with additional technical indicators and volume analysis to avoid false signals. It should not be relied upon in isolation but can be highly useful when combined with other technical analysis tools.