Candlestick patterns are pretty much always sought-after by traders. While these patterns provide a hint of how price moves, it can also give a glimpse of the direction of a trend. this is the reason why traders value the use of candlestick patterns in every trade. In this article, we’ll be discussing one of the most prominent candlestick patterns which is the Three White Soldiers Pattern.
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What is the Three White Soldiers Pattern?
First of all, the Three White Soldiers candlestick pattern is a bullish pattern that signals a reversal of a downtrend market. It is a “loved” pattern by traders because it signals an opportunity to buy positions for possible profits.
It is made up of three consecutive long candlesticks with each body surpassing or exceeding the previous candle high. The opening price of the next candle can be located above or below the previous closing price however the closing price should always be higher than the previous candle high.
Each of the candles should not come with long tails or shadows – short or absence of tails or shadows show favor toward the buyers.
The Three White Candle pattern usually shows up at the end of a downtrend but can also show up near the beginning of an uptrend. The breakout happens after the third bullish candle, which leads to the continuation of a bullish trend that has been started by the pattern.
How to Trade the Three White Soldiers Pattern
To trade the Three White Soldiers Pattern, let us consider the chart from the asset 888 Holdings on eToro.
In the image below, we can see that there is a long bearish trend from the left side of the chart. Many beginning traders immediately turn away from bearish trends at first sight because they think that the trend may always continue downward. While there is a possibility that the trend will continue, there is also the possibility that the trend will reverse – one only needs to be mindful of the patterns.
For this example, we can see that the long bearish trend was broken by a steep series of bullish candles. Before the three long bullish candles (which makes the Three White Soldiers pattern), we can observe a moderate consolidation at the bottom of the trend. We can also notice the Doji pattern prior to the Three White Soldiers pattern, thus we can conclude that the Doji pattern paired with a Three White Soldiers pattern greatly reinforces the assumption that a trend will go upward or bullish.
On this illustration, we can also see that the new highs of each candle are way above the previous high of each candle. The thick body of the candles having short shadows or tails suggests the strength of the buyers and that buyers are at the advantage of the current trend. The best entry points for this pattern would be after the third bullish candle. While many traders think that it would be practical to exit a trade after the Three White Soldiers pattern, many understand how this pattern works and considers it as an opportunity to buy or add more positions.
Our final thoughts
Whenever trading the Three White Soldiers Candlestick pattern, always be mindful of your overbought and oversold indicators through the RSI (Relative Strength Index). The RSI tells you whether an asset has already been sold too much or has already been bought too much. An “overbought” indication from the RSI means that the asset has been bought many times which pushes the price down the chart – this creates a tendency for the price to go for a pullback. On the other hand, an “oversold” indication from the RSI means that the asset has been purchased many times which pushes the price to go up – with this scenario, there will be great chances for a bounce-back or for prices to go up.
Another way to confirm a breakout through the Three White Soldiers pattern is to confirm the volume. Each candle should have a considerable volume to enable the continuation of the bullish trend. As mentioned earlier, the thicker the body of the bullish candle and the smaller its shadow, the better. It provides a good confirmation that buyers are at the advantage and would still want to push the price at a higher level.
Combining it with other candlestick patterns, the Three White Soldiers pattern can easily be spotted in a chart and can be easily taken advantage of. Among the patterns that are usually paired with this pattern include the Doji, Double and Triple bottom pattern, Head and Shoulders pattern, and many other reversal patterns.
So as a final thought, the Three White Soldiers pattern is a friendly pattern that every trader should be familiar with. With the right interpretation, along with the proper entry and exit points, a trader would be able to go along well when faced with this pattern.
The best way to practice trading the Three White Soldiers pattern is through the eToro trading platform. eToro comes with a virtual portfolio that lets you trade using virtual funds. This allows you to access the actual trading without having to use real money.
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