Understand the Three White Soldiers Candlestick Pattern

Should you march into the market when you see the three white soldiers?

Three white soldiers are formed by three successive candles that indicate a trend reversal. It is one of the many candlestick formations that are used by technical traders to identify a possible entry in the market.

Japanese candlesticks are unique formations in daily trading charts that give traders an idea of price movement by capturing opening and closing price along with high and low. For new traders, interpreting candlestick charts can be difficult initially. So, they must learn about different formations to be able to identify them in daily trading charts and plan strategies around them.

Their unique arrangement in a downtrend differentiates three white soldiers from other candlestick patterns. These are consecutive candles with long bodies, each opening within the body of the previous one.

What Does The 3 White Soldiers Pattern Tell You About The Market?

Three white soldiers are considered a reliable indication of a trend reversal.

Three long-bodied candles denote gradual upward movement; each opening within the body of the preceding one – higher opening and closing. It suggests a robust change in trend. However, traders need to consider the size of candles and shadows to eliminate any chance of retracement. If a candle forms without a shadow, it means that the bullish trend remained dominated and the price closed at the higher range.

Usually, three white soldiers candlestick pattern appears after a Doji, which is suggestive of a trend reversal.

How to identify three white soldiers within a trading chart

  • It forms at the end of a downtrHow to identify three white soldiers within a trading chart
  • The first candle forms in a downtrend – contains a white body.
  • The second candle opens within the body of the first candle and closes above it.
  • The third candle opens higher than the opening of the second candle and then closes above it.
  • It is the opposite pattern of three black crows. In Japan, where the candlestick patterns originated, it is called three red soldiers.
  • It indicates bull is taking control of the market, and traders can enter into a long position.

Forming A Trading Strategy Around Three White Soldiers

Traders consider the three white soldiers a sign strong enough to consider bullish trend reversal. So, traders who are short, plan an exit and traders, looking for an entry point take their position for long. However, sometimes overenthusiasm around it can lead to overbuying, and you may find the relative strength index to cross the 70 marks. This could also be a way to test market resistance while the bullish reversal strikes. Overall, the market remains bullish, although there could be short phases of consolidation.

Differences Between Three White Soldiers And Three Black Crows

Three black crows lie on the other side of the spectrum. In it, three long-bodied candles form, each within the body of the preceding one and closing lower than the previous. The sentiment around three black crows is bearish. It suggests that bear is taking control of the market, hinting traders to exit long position. However, caveats around both formations remain the same. Traders need to confirm trend reversal with volume and other trading tools

Limitation Of Three White Soldiers

Like other chart patterns, three white candles alone might not suffice to indicate substantial market change. It is considered an upward trend reversal pattern because of three consecutive rising candles and almost non-existence of the upper shadow. However, it can also happen after a short period of consolidation.

Candles with long bodies indicate too robust upward pull which might occur due to traders engaging in overbuying, pushing the market too hard and too early on the onset of a trend reversal. Because of these uncertainties, it is crucial to confirm with other trading tools and through volumes of subsequent sessions.