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Three White Soldiers – A Bullish Reversal Candlestick Pattern

Summary

  • Three White Soldiers is a Japanese candlestick pattern that consists of three green candles showing a bullish breakout.
  • The Three White Soldiers pattern consists of three green candles, each of which opens and closes progressively higher than the last.
  • The Three White Soldiers pattern can be taken as an entry or exit signal, depending on how you use it.

three-white-soldiers

Three White Soldiers is a Japanese candlestick pattern that consists of three green candles showing a bullish breakout. It generally occurs at the bottom of a market downtrend, indicating a reversal is about to break out. Three White Soldiers is one of the many Japanese candlestick patterns, a group that includes Doji Candles and Marubozu Candles.

Understanding Candlestick Patterns

Traders use candlestick patterns rather than line charts because a candlestick reveals what happened in the trading session it covers.

A candle tells a trader four key pieces of information:

  • The opening price, indicated by the top of the candle body
  • The closing price, indicated by the bottom of the candle body
  • The highest price reached in the trading session, indicated by the top of the upper wick
  • The lowest price reached in the session, indicated by the bottom of the lower wick

Japanese rice traders used candlestick patterns in the 17th century. However, they were popularized among modern traders in the 1990s, thanks to Steve Nison and his book “Japanese Candlestick Charting Techniques.” Traders use them as a way of spotting trends, reversals, and momentum.

What is the Three White Soldiers Pattern?

Three White Soldiers is a bullish indicator that typically occurs at the end of a bear trend, indicating a reversal is about to happen.

The Three White Soldiers pattern looks like this:

Three White Soldiers

Source: TradingView

As you can see, it consists of three green candles, each of which opens and closes progressively higher than the last. The candles have either very small or no wicks, signaling intense buying pressure from traders, who maintain prices at the top of each session’s range. There are no gaps with this pattern, meaning that each candle should open within or at the top of its predecessor’s body.

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.

How to Trade the Three White Soldiers Pattern

The Three White Soldiers Pattern as an entry or exit signal

The Three White Soldiers pattern is not particularly common on a trading chart. One analysis showed that it occurred only once in close to every 3,000 candles. However, the same analysis found that, perhaps due to its rarity, the Three White Soldiers pattern is a fairly reliable indicator of a bullish trend following a bearish market, confirming around 90% of the time.

Therefore, the Three White Soldiers pattern can be taken as an entry or exit signal, depending on how you use it.

If you’re looking for an entry point for a long position, then look for the Three White Soldiers pattern to emerge at the end of a downward trend so you can decide when to open your trade. Similarly, suppose you’re in an open short, and you see the Three White Soldiers pattern. In that case, you should consider it an indicator to exit your trade before the market reversal gets fully underway.

Learn When to Exit a Trade: Effective Exit Trading Strategies

Risks and Limitations of Using the Three White Soldiers Pattern

1 When the market is undergoing a period of consolidation

Even though it’s a fairly reliable candlestick pattern, there are some risks to using Three White Soldiers, particularly if you take it as a trading signal in isolation. On occasion, it can emerge while the market is undergoing a period of consolidation. If you open a position based on the Three White Soldiers pattern and the market does consolidate, you could end up on the wrong end of a losing trade.

3 Volume Trading and the Three White Soldiers Pattern

As with many other candlestick patterns, the volume is another consideration. Low volume trading periods can result in anomalous candlesticks emerging, and if this happens with Three White Soldiers, the pattern may prove to be less reliable.

It’s always advisable to use candlestick patterns and technical indicators in parallel, as they can help provide additional information that may confirm or contradict one another, helping to make more informed trading decisions.

Three White Soldiers vs. Three Black Crows

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 a reversal.

three black crow

source: Investopedia

Like the Three White Soldiers, the Three Black Crows show a candlestick body with a progressively lower closing price and short wicks, indicating that bears are in control of the session, pushing prices to a bottom that’s close to or at the closing price.

If you see Three Black Crows emerge while you’re holding a long position, you can take it as an indicator that you may want to close your trade. 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.

Learn how to Short and Long Bitcoin?

However, the same caveats apply as for the Three White Soldiers. Ensure there’s sufficient volume to validate that the pattern isn’t an anomaly and use another indicator such as MACD or RSI (Relative Strength Index) to confirm the trend.

What Makes The Three White Soldiers Pattern Unique

The Three White Soldiers Pattern doesn’t Have Any Gaps

As previously mentioned, one characteristic of the Three White Soldiers pattern is that there are no gaps. The next candle’s body should start within the same trading range as the body of its predecessor. If there are gaps between the bodies, then the pattern isn’t Three White Soldiers, but it’s definitely an indicator to look more closely at the market before entering a trade.

Gaps occur when a trading session opens with a significantly higher or lower price than the opening or closing price of the previous session. This is an infrequent, almost nonexistent occurrence in the cryptocurrency markets, as they’re traded 24/7. However, if you come across a gap in a cryptocurrency candlestick chart, there’s every chance that it’s a low-volume market without much liquidity, so proceed with caution.

It’s fairly common to see gaps in charts for other assets like stocks or commodities, which are subject to market trading hours. If an event happens outside of trading hours, it’s possible that trading for the next session opening with the event already price in, resulting in a gap on the candlestick chart.


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