Trading with the Japanese candle involves several strategies, including the Reversal Formation with the Three White Soldier candlestick pattern. Reversal formation trading helps traders enter the market sentiment at an early stage of the trend and make the most use of the trend trading.
The three white soldier pattern is a reversal trading strategy and a combination of three candles. It gives helpful information to predict the price rise of a solid downtrend, that is, a reversal to an uptrend.
Therefore, traders at any level maximising the potential of candlesticks can use three white soldier patterns to make decisions.
In this article, we will see what the three white soldiers’ pattern is, its requirements, how it works to trade with it with a practical example and how to trade when you see the three white soldiers pattern.
What does the Three White Soldiers pattern mean?
The three white soldiers’ candlestick pattern suggests a strong change in the direction of market downtrends regarding stock, commodities, or currency pairs.
Three white or green soldier candles are three consecutive large-bodied bullish candles that appear after a significant downtrend. In this candle pattern, the second and third open within the previous candle’s body and close above it.
To identify the Three White Soldiers pattern, look for the following criteria in a three consecutive bullish candle:
- Three long and bullish (white or green) candlesticks must be along a strong downtrend. This indicates that the bears are exhausted, and bulls control the trading session, forming a potential strong reversal of price action.
- Within the pattern, the second and third candlesticks should open within the previous candle’s body, that is, the preceding trading session. Ideally, the second and third candles should be approximately the same size as the first or longer. This confirms that the bulls are genuinely the market king for the session.
- Each candle must open progressively upwards, establishing a new short-term high.
- The candles should have small or nonexistent shadows (wicks). This indicates that the bulls are the current market owners and have managed to keep the price of financial assets near the height of its range for that period.
As efficient as this trading indicator is, some of its drawbacks include:
- Shift in size (length) of the candle along the pattern. It strongly reduces the reliability of the pattern.
- The pattern can occur during a consolidation period, leading to a mixed sentiment about the reliability of the trend.
- Also, the pattern may exist within a trend. This appearance discredits the whole interpretation of reversal formation.
In all, this pattern is identified as a downward trend and indicates a trend change to an upward trend. If the three soldiers appear in the middle of an upward trend, the formation loses reliability, as it could mean exhaustion of the same.
Although the three white soldiers pattern is a family of the Japanese candle pattern, it can predict market trends. Using other technical analysis and strategies to double-check your position is advisable.
How does the Three White Soldiers pattern work?
As said earlier, the three white soldier candlestick pattern is a reversal indicator of a downtrend. The pattern suggests that the bear (sellers) are going out of the market, and sentiments in terms of stock, commodities, currency pairs, and other securities are giving a price rise action of the bulls.
When the bullish candles (green or white) close with small or no wick, the buyers are in for that trading session. So, if this manages for three consecutive sessions to form a pattern, bull traders see it as an entry point for a bullish market.
In addition, some suggestive candlestick patterns may precede the three white soldiers’ candlestick.
Here is a simple example of a white soldier pattern appearing in a pricing chart of a security.
The security has a solid bearish downtrend where sellers dominate the market for several trading sessions before the white soldier candles appear. The pattern appears to give a strong reversal trend.
The pattern suggests the trend may continue, but you should look more into the preceding candlestick to get more information as a trader. For example, after the sessions of the three bullish patterns, the bullish trend may reach an area of resistance. This occurrence may be predicted with the preceding trends and give you more information about the potential of the coming uptrend.
What is the psychology behind a Three White Soldier pattern?
The three white soldiers simply reflect increased buying pressure in a bearish trend. This gives traders potential entry or exit of a trade. Therefore, traders who are short in the market look to leave, while those who want a bullish position will go long, seeing the three white soldiers pattern.
Also, it indicates a change in the price movement, so investors buy to take advantage of the market turn when they detect the pattern.
It’s important to note that the white soldier pattern strong move may be a temporary overbought, and bulls are not in the market to increase the purchasing power. In this situation, the security’s relative strength index (RSI) may be above 70, but the potential uptrend can decline.
In addition, there may be some short period of consolidation after the three white soldiers pattern, and some short and intermediate bias will remain in the market. However, it is still bullish with the potential of a total bullish market.
How to trade with the Three White Soldiers pattern?
Generally, you can use the three white soldiers candlestick pattern to make trade decisions on Contract For Difference (CFDs) or Spread bet.
Here is the general scheme of trading the three soldier candlestick pattern:
- Identify the pattern of the three consecutive green or white candles with large bodies and almost no wicks.
- Determine the direction of the movement. Since the pattern suggests an uptrend direction of the market, other appropriate technical indicators, such as stochastic oscillator and Relative Strength Index, can further establish the market trend.
- Establish the potential entry and exit targets for yourself. You have to decide where to open and close positions based on the predefined objectives and the key levels of the chart (such as supports and resistances).
- Opening position: It is a buy position after the candlestick, and you can open it at the start of the fourth candle (just after the closing of the third soldier), as long as it is above half of the third soldier.
- Stoploss: It is best to set it slightly below the last red candle before the first white soldier appears.
Despite being an exciting pattern, it is by no means infallible. Therefore, additional tools should be used to support the decisions made based on the pattern. In this case, it is usually interesting to observe the RSI indicator since if the bullish signal of the pattern is activated, the RSI is indicating overbought. We will have a vital synergy and will reinforce said bullish signal.
How to trade Three White Soldiers candlestick pattern on ActivTrades
You can trade three white soldier candlestick pattern positions with derivatives such as CFDs and Spread bets to access stocks and shares market, ETFs, commodities, and Forex. Holding a position with the candlestick market trend of financial instruments allows you to trade without ownership of the assets.
Follow these steps to trade when you see the three white soldiers chart pattern on ActivTrades:
Step 1: Open An ActivTrades Account
Signing up for an ActivTrade account typically takes 15 minutes, and it may take up to 24 hours for account verification. Follow the steps below to register a trading account.
- Go to the ActivTrades website and click ‘Register Now’ at the top right corner.
- Fill in the required information, including your country, name, and email. Then, create a password.
- Complete the registration by filling out the ‘Personal Details‘ and ‘Residential Details’ forms.
- Fill in the questionnaire regarding your financial experience and risk appetite.
- Configure your account by choosing the platform (ActivTrader, MetaTrader 4, or Metatrader 5) and choose your base currency.
- Verify your identity per current Know-Your-Customer requirements (provide your ID and proof of address).
Note: You should choose an ActivTrade account (Individual or Professional account) according to your trading and investing experience.
Step 2: Fund your Account
Once your account is verified, you can fund the account to start trading. ActivTrades offers several payment options, such as credit/debit cards, bank transfers, or electronic wallets like Neteller, Paypal, Skrill, etc.
ActiveTrades does not have any minimum deposit amount. All Deposit to your ActivTrade account is free except with card deposit. ActivTrades charges a 0.5% fee on every deposit. Also, with any funding method, the funds should appear in your ActivTrades account in at most 30 30-minute waiting time.
All withdrawals from ActivTrades are free, irrespective of the methods.
👉 Check out our ActivTrades review for more information
Step 3: Look for the asset you are interested in
Depending on the trading platform you’re using to trade your ActivTrader account, navigate the platform to the commodities section and find the financial instrument you are interested in. You can also search for the securities to view its chart and check for the possibility of a three-white soldier pattern.
Step 4: Analyze the Market
Once you find the commodity, you can analyse the market to make financial decisions. ActivTrades, through its trading platforms, offers fundamental and technical analysis tools to help make the best investment decision. When you click on the asset, you will see the market trend as a line, graph, or candlestick in different timeframes, depending on the trading platform.
Pros and Cons of using the Three White Soldiers pattern
✅ Strong Reversal Signal: After a bearish trend, the appearance of this pattern can be a clear signal that the trend is changing to bullish.
✅ Easy Identification: By barely looking through a significant bearish
✅ Confirmation: Three consecutive bullish candles give a more decisive confirmation of a trend change than, for example, a single bullish candle.
✅ Use in multiple time frames: The candlestick pattern is not rigid to any particular timeframe of the security market.
❌ False Signals: As with any technical analysis pattern, there may be occasions where the pattern does not result in a sustained trend change.
❌ Context-Dependence: It is only helpful if preceded by a bearish trend.
❌ Need for Confirmation: Although the pattern itself is a reversal signal, many traders look for additional confirmation through other technical indicators
Other interesting three-candle patterns
- Dawn Star: After the darkness, the light arrives! The “Dawn Star” is a bullish pattern that emerges after a bearish trend, signalling a possible bullish price turn.
- Twilight Star: Just when everything seems to shine, the “Twilight Star” warns of a possible sunset in an uptrend. Discover how this pattern can predict falls.
- Three Black Crows: When the crows appear, the bulls flee! This bearish pattern foreshadows an imminent drop after an uptrend. Discover how it works.
Nevertheless, the Three White Soldiers pattern is a Japanese candlestick technical formation that indicates a change from a bearish to a bullish trend and is composed of three consecutive bullish candles with large bodies and small wicks. However, these candles must appear after a bearish trend for reliable identification. Although it is a strong and easy-to-identify reversal signal, it can present false signals.
FAQs about the Three White Soldiers candlestick
What does the three white soldiers chart pattern indicate?
Generally, the three white soldiers chart pattern indicates a potential bullish market after a significant downtrend (bearish market). However, you may need other analysis strategies and indicators to validate the speculation of the three white soldier chart patterns.
How accurate is the three white soldier candle pattern?
There is no such valid answer to how accurate the candlestick pattern is. However, the reliability of the bullish indication should be verified with other technical indications such as RSI and Fibonacci.
What do three white soldiers mean?
Simply put, it is a candlestick chart pattern that indicates a possibility of advanced buying pressure with high trading volume after a bearish trend.