What is the Three White Soldiers candlestick pattern?
The Three White Soldiers structure
Difference between the Three White Soldiers and Three Black Crows patterns
How to read the Three White Soldiers pattern in technical analysis
When is the best time to trade using the Three White Soldiers pattern?
This pattern has gone by several names throughout history. Originating in Japan, it was initially named 'Three Red Soldiers' because Japanese traders used red candles instead of white. In the 18th century, Japanese rice sellers used it to gain valuable visual insights into market psychology. Over time, traders around the world adopted this candlestick technique for various markets, including Forex. Today, it is globally known as the Three White Soldiers pattern. The term ”Three White Soldiers” in its name refers to three consecutive candlesticks, and it can be challenging to find them on a chart.
Although this pattern is relatively rare, it is an essential signal that traders carefully analyse. It can be beneficial for initiating new trades or closing existing positions. In this article, we will look at this pattern in detail and discuss its importance for chart analysis.
What is the Three White Soldiers candlestick pattern?
The Three White Soldiers candlestick pattern is a bullish reversal signal. Traders use it to identify potential buying opportunities. It usually appears at the end of a bearish trend. There, it indicates a change in market sentiment from bearish (negative) to bullish (positive).
The Three White Soldiers candlestick pattern consists of three bullish candles, all consecutive and with long bodies. Each bullish candle opens and closes above the previous candle.
The Three White Soldiers structure
The construction of this pattern is described in the table below.
| Candlestick | Characteristics |
| The first candlestick | It has a long body and small wicks. The candlestick should be positioned near its high, representing initial buying pressure, changing the market sentiment from bearish to neutral or slightly bullish. |
| The second candlestick | This candle should also have a long body with little to no upper wick and close higher than the first day's close, indicating that buyers are continuing to push prices higher. |
| The third candlestick | Similar to the second one, this candlestick should have a long body and close higher than both previous days' closes, showing that buyers are firmly in control. |
In the past, some analysts required specific conditions regarding the opening and closing prices of candlesticks. Still, the interpretation of candlestick patterns has evolved. Today, three consecutive long bullish candles indicate that bulls dominate the market.
While pattern confirmation is essential, it doesn't have to happen immediately. Prices may drop temporarily as some traders take profits, but the candles create a support zone that can help stabilise the market.
What is crucial to understand is that if a candlestick closes below the opening price of the first candlestick, it may be a false sign of a reversal.
Difference between the Three White Soldiers and Three Black Crows patterns
| Pattern | Three White Soldiers | Three Black Crows |
| Structure | This pattern consists of three consecutive long bullish (upward) candlesticks closing higher than the previous day's close. | Conversely, this pattern consists of three consecutive long bearish (downward) candlesticks closing lower than the previous day's close. |
| Context | It typically appears after a downtrend and suggests a strong reversal to the upside, indicating that buyers are gaining control of the market. | It tends to occur after an uptrend and signals a potential reversal to the downside, indicating that sellers are taking control. |
1. The Three White Soldiers candlestick pattern
2. The Three Black Crows candlestick pattern
Advantages and disadvantages
The Three White Soldiers candlestick pattern presents several advantages to traders.
- It signifies a substantial transition from bearish to bullish market sentiment, indicating that buyers are in control, and that a new uptrend may be starting.
- When it appears after a downtrend, the Three White Soldiers pattern strongly suggests a market reversal. Traders often see it as a reliable buy signal to enter at good prices.
- It can be combined with other technical indicators to improve trading strategies. It works well as a confirmation tool when used with support and resistance levels, momentum indicators, or volume analysis.
While the Three White Soldiers candlestick pattern is generally regarded as a reliable indicator of bullish reversals, it has several drawbacks.
- Despite its established reputation, the Three White Soldiers candlestick pattern does not guarantee a price reversal. There are instances where the price may appear to reverse but subsequently continue its downward trend, potentially resulting in losses for traders who enter positions based solely on this signal.
- The efficiency of the Three White Soldiers candlestick pattern is not universal across all market conditions. Therefore, it is essential to combine this tool with other technical indicators and analytical methods to facilitate well-informed trading decisions.
- Traders who place excessive reliance on the Three White Soldiers pattern may risk overtrading. Such overdependence can lead to significant financial losses if it is not balanced with alternative forms of analysis and sound risk management strategies.
How to read the Three White Soldiers pattern in technical analysis
The Three White Soldiers candlestick pattern consists of three consecutive bullish candles, each closing higher than the previous one, demonstrating strong buying momentum. Ideally, these candles should have small upper and lower shadows, suggesting that buyers are in control throughout the trading session.
Examples
Let's model the following situation: the EURUSD currency pair has been on a long downward trend, dropping a bit—it started at 1.0980 and fell to 1.0880. Now, if we look at the Three White Soldiers, things are beginning to look up. First, we spot a green candle that rises by 50 pips, bringing the price to about 1.0930. Next, we see another green candle that closes above the previous low of 1.0980, showing more strength. Finally, there's a third green candle that closes bullish with hardly any upper wick, indicating that buyers are really pushing the price up. This pattern suggests the market is turning bullish, and traders might start feeling more confident about taking long trades.
How to trade the pattern
The steps below outline how to trade the Three White Soldiers pattern.
- Identify the trend—bearish trend.
- Wait for the three bullish candles—the Three White Soldiers pattern.
- Open a trade at the close of the third candle pattern, as shown by #2 above.
- To manage the risk, put the stop loss below the first bullish candle pattern, as shown by #1 above.
Unlike many other trading strategies, the Three White Soldiers candlestick pattern has some drawbacks. The main challenge is the distance in pips between the stop loss and the opening price. If the trade does not work out, one can make a huge loss. Therefore, it is necessary to manage the risk.
When is the best time to trade using the Three White Soldiers pattern?
The Three White Soldiers candlestick pattern is well traded at the end of a trending market. It is not advisable to trade the pattern when the market is ranging. Analysing larger timeframes, such as daily or weekly charts, enhances the pattern's validity, as these longer-term data sets reduce market noise and provide greater reliability. Identifying the pattern on these charts suggests a sustainable bullish trend.
Final thoughts
- The Three White Soldiers pattern serves as a significant indicator in technical analysis, signalling a potential market reversal.
- It marks a transition from a bearish trend to a bullish one. This formation is characterised by three successive bullish candles, each closing at a higher price than it opened.
- These candlesticks demonstrate robust buying activity.
- Traders can use this pattern to pinpoint possible buying opportunities.
- However, it is crucial to assess the broader market context in which this pattern emerges and corroborate it with additional technical indicators for more reliable decision-making.
