Candlestick patterns are a cornerstone of technical analysis, helping traders identify potential reversals and continuations in price trends. One of the most powerful bullish reversal patterns is the Three White Soldiers pattern. This pattern consists of three consecutive strong bullish candles, signaling a shift in market sentiment from bearish to bullish.
When this pattern appears at the end of a downtrend, it often marks the beginning of a new upward trend, making it an essential tool for traders looking for long entry opportunities.
In this guide, we will explore:
- What is a Three White Soldiers pattern?
- How to identify it on a chart?
- Why does it form?
- How to trade it effectively?
- Common mistakes and key takeaways.
By the end of this article, you will have a clear understanding of how to spot, confirm, and trade the Three White Soldiers pattern successfully.
What is a Three White Soldiers Pattern?
The Three White Soldiers pattern is a bullish reversal pattern that consists of three consecutive strong green (bullish) candles, each opening within the previous candle’s body and closing near the session’s high. It signals a strong shift in momentum from sellers to buyers.
Key Characteristics of the Pattern:
- Three Consecutive Bullish Candles – Each candle must be green and progressively increase in size.
- Higher Closes – Each candle should close near its high, indicating sustained buying pressure.
- Small or No Wicks – This shows that buyers are in full control, with little rejection from sellers.
- Opens Within Previous Candle’s Body – Each new candle should open within or near the previous candle’s real body.
For the pattern to be most effective, it should appear at the end of a downtrend, near key support levels, or in oversold conditions as indicated by momentum indicators like RSI.
How to Identify a Three White Soldiers Pattern?
To correctly spot a Three White Soldiers pattern on a chart, look for these key characteristics:
Essential Conditions:
✔ Occurs in a Downtrend – The market must be in a clear bearish phase before the pattern forms.
✔ Three Consecutive Bullish Candles – Each candle should open within the previous candle’s range and close near its high.
✔ Increasing Bullish Momentum – The candles should ideally grow in size, confirming strong buying pressure.
✔ Significant Volume Increase – Higher volume on these candles adds credibility to the pattern.
Invalid Conditions:
✖ If the three candles form in an uptrend, they do not indicate a reversal but rather a continuation.
✖ If the candles have long upper wicks, it suggests selling pressure, weakening the pattern’s strength.
✖ If there is no volume confirmation, the move may lack conviction.
Why Does a Three White Soldiers Pattern Form?
The psychology behind the Three White Soldiers pattern reflects a dramatic shift in market sentiment:
- End of a Downtrend – The market has been in a bearish phase, with selling pressure dominating.
- Strong Buying Interest – Buyers begin to step in aggressively, overpowering sellers.
- Consistent Higher Closes – Three consecutive bullish candles confirm a sustained shift in momentum, reinforcing the likelihood of a new uptrend.
The presence of three consecutive bullish candles indicates that the market has transitioned from seller dominance to buyer control, making this pattern a high-confidence signal of a bullish reversal.
How to Trade the Three White Soldiers Pattern?
To trade the Three White Soldiers pattern effectively, follow this step-by-step strategy:
Step 1: Identify the Pattern in a Downtrend
Ensure that the market has been in a prolonged downtrend before the Three White Soldiers pattern appears.
Step 2: Confirm with Additional Indicators
For increased accuracy, use additional technical tools:
✔ Support Levels – If the pattern forms near a strong support zone, it adds credibility.
✔ Moving Averages – A Three White Soldiers appearing near the 50-day or 200-day moving average enhances reliability.
✔ RSI (Relative Strength Index) – An RSI below 30 (oversold condition) suggests a higher probability of reversal.
✔ MACD (Moving Average Convergence Divergence) – A bullish crossover following the pattern strengthens the buy signal.
Step 3: Place Your Trade
- Entry Point: Buy at the close of the third bullish candle or after a small pullback.
- Stop-Loss: Place below the low of the first candle to minimize risk.
- Take Profit: Target the next resistance level or use a risk-reward ratio of 1:2 or 1:3.
Step 4: Monitor Trade and Adjust
- If volume remains high, the trend is likely to continue.
- If price struggles at resistance, consider securing profits early.
Real-World Example of a Three White Soldiers Pattern
Let’s look at an example where the Three White Soldiers pattern appears on Apple Inc. (AAPL) stock.
Market Conditions:
Apple’s stock has been in a steady downtrend, falling from $180 to $150 over several weeks. Investors are bearish, expecting further declines.
Formation of the Three White Soldiers Pattern:
- First Candle: A strong bullish candle forms, closing near its high at $155 after a long period of selling.
- Second Candle: The next day, Apple opens near the previous close and surges higher, closing at $160 with little to no wick.
- Third Candle: On the following day, another strong green candle forms, closing at $165, confirming the bullish reversal.
Trade Execution:
- Entry: A trader enters a long position at $165 after the Three White Soldiers confirm the reversal.
- Stop-Loss: Placed below $150 (the first candle’s low).
- Target: The next resistance level at $175, offering a solid risk-reward ratio.
This real-world example illustrates how the Three White Soldiers pattern helps
