Three White Soldiers Candlestick Pattern in Trading Explained

As experienced traders know, not all candlestick patterns provide an entry point and indicate a market reversal. There are trend continuation patterns among them, they are used to assess the current market situation, and they do not give a signal to enter the market. The pattern of three white soldiers belongs to this category. It is suitable for both forex and the stock market, so be sure to include it in your arsenal.

Identifying Three White Soldiers Pattern

This pattern belongs to the category of patterns indicating the continuation of the trend. Occasionally, after the formation of soldiers, there is a reversal (repulsed attack, growing into a new trend), but such situations are rare.

The formation consists of 3 bullish candles:

• The shadows are insignificant compared to the size of the body. The absence of significant upper shadows speaks in favor of the strength of the bulls, the growth does not meet resistance;
• On each candlestick the previous High is updated;
• There is no impulse movement. If one of the candles is several times larger than the neighboring candles, the reliability of the pattern of the three white soldiers is reduced.

As for the time frame, it is better to work in time frames no lower than H1, and preferably H4 or higher. With their help we estimate the state of the market, in low time frames such an estimation is meaningless - random chart fluctuations reduce the value of the pattern to zero.

The three white soldiers are strongest when the chart exits the flat zone or when the correctional movement is over. A new wave of upward movement begins. If you see the formation of three such candles on the maximum of the current trend, the pattern is also not bad, but the potential for movement is somewhat less.

Consider the three white soldiers in the context of what is happening in the forex market. If a reversal is formed immediately after the third candle on the maximum of the uptrend, the potential for further growth is questionable. 

Classification of Three White Soldier Patterns

Depending on the configuration of the candles and the area of the chart in which they appear, there are subtypes of the pattern called repulsed attack and deceleration. If a number of conditions are met, they can indicate a market reversal or the beginning of a correction/consolidation. We do not trade market reversals using this pattern.

Deceleration 

This situation develops when the trend slows down. It's not about a reversal, but the full three white soldiers pattern is not formed. The third candlestick with a small range characterizes the indecisiveness of the bulls. Often in the 2nd candlestick, we observe an increase in volatility - its range is larger than in the neighboring candlesticks.

The maximum may be updated, but with a small margin. After three such candles, there is no 100% probability of a market reversal, but if long positions are open, the Stop Loss on them should be moved at least to breakeven.

If the pattern of deceleration appears when approaching a resistance level, the probability of at least a correction increases. Do not use it as a reversal signal.

When identifying the pattern of deceleration, pay attention to:

• The range of the third candle. If it is a wave (a candle with a small body and almost no shadows), the growth slows down;
• The presence of a long shadow from below. Its presence indicates an attempt by the bears to reverse the trend. As a result, three white candlesticks are formed, but the bulls are already having a hard time with the sellers' pressure;
• The presence of a level nearby, its touching the chart is not necessary.

We recommend closing at least a part of the profit when such patterns are formed.

Repulsed attack

This is the name given to the three white soldiers, in which the third candle has a pronounced reversal configuration. That is, there is a long shadow from above - the bulls tried to continue the current trend, but the bears repulsed the attack (hence the name) and moved the price down. A noticeable shadow from above may be formed on the 2nd candlestick.

The difference between this pattern and the deceleration is very conventional, but the meaning is similar. So, if you confuse the patterns, tragedy will not happen. What is important in forex is not so much the terminology as the understanding of what is happening in the market.

The principle of working with this pattern is the same - it's a marker that indicates that we should hedge the open positions. We fix part of the profit, and on the balance, we move the Stop Loss to breakeven.

Tips for Trading the Three White Soldiers Pattern

Trading on Japanese candlesticks is more of an art than a craft. There are no universal instructions, the importance becomes intuition and the ability to look at the situation from different angles. The three white soldiers pattern is a strong one that does not require any confirmation. But it is impossible to recklessly open a long position, just having seen a pattern on the forex chart. The situation should be assessed first:

• The appearance of the pattern must be preceded by a long decline of the market or consolidation in the area of low prices;
• If all three candlesticks of the pattern are not too short and not too long, about the same size, and with small shadows (or without them) - you can open a long position;
• The second and third (or only the third) candlesticks of the pattern may be small and weak, with long upper shadows. Then it is no longer three white soldiers, but a repulsed attack. It means that something has clearly gone wrong here.And indeed, the market growth meets strong resistance and it is likely to turn down, but not up. This is not the time to buy;
• The same situation is with the deceleration pattern: a very long body of the second candle and a small third one (star formation). This is also a signal to stay away: if there is no position open, it is better not to start; if there is an open position, it is better to take a profit and exit the market;
• And do not neglect the indicators of technical analysis. For example, the oscillators (RSI, MACD, Momentum) will help to assess the degree of an overbought market.

Conclusion

The pattern of three white soldiers is not recommended to use directly to place trades in the forex market. It indicates that the uptrend is more likely to continue than the reversal. We do not get a specific entry point.

The pattern is also suitable for profit-taking. If you get a repulsed attack or deceleration in the approach to the level, you can not take the risk and close the trades with a profit. It is better to look for options to re-enter at the end of the correction than risk profits.

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