Three White Soldiers Candlestick Pattern in Trading Explained

Understanding candlestick chart patterns is crucial for making effective trading decisions. These patterns can help you predict future price movements, which can be used to enhance your strategy and outcomes. Of the many candlestick patterns known to traders, very few produce signals as strong as the three white soldiers.

Although the three white soldiers candlestick pattern is relatively easy to spot on the charts, having the right charting tool is essential. The Samco Trading App provides free access to TradingView charts, which is widely renowned for being one of the most powerful and robust charting tools currently available. With TradingView charts, you can not only spot the three white soldiers quickly but also get access to other useful technical indicators, which you can use to confirm the trading signals generated by the pattern.

Now, let us dissect the three white soldiers candlestick pattern, explore its significance, and understand how to trade it effectively.

Three White Soldiers Candlestick Pattern: An Overview 

The three white soldiers candlestick pattern is a bullish reversal pattern comprising three green or white candlesticks. The pattern usually appears at the end of a downtrend and forms when buyers take control of the market after a period of sustained selling pressure. The three consecutive white or green candlesticks indicate a gradual increase in buying momentum, often signalling the start of a new uptrend.

Features of the Three White Soldiers Candlestick Pattern 

The three white soldiers have a distinct appearance setting it apart from other candlestick patterns. Here is a closer look at some of the noteworthy features of this specific chart pattern.

• Three Consecutive Bullish Candlesticks

Firstly, the pattern consists of three bullish candlesticks, each closing higher than the previous one. 

• Little to No Upper Wicks

Each of the three bullish candlesticks has either no upper wick or a small upper wick. This indicates that the price closed at or near the highest point of the trading session, effectively signifying strong buying pressure throughout.

• High Opening Prices

Another major feature of the three white soldiers candlestick pattern is that all three candles open higher than their preceding candles.

Significance of the Three White Soldiers Candlestick Pattern

The three white soldiers pattern holds significant importance in technical analysis, often prompting traders to take up long positions once they appear on the charts. Let us look at a few reasons why this particular candlestick chart pattern holds such high significance.

• Indicates Trend Reversal

The pattern indicates mounting pressure from the bulls and signifies a potential trend reversal from bearish to bullish, especially when it appears after a downtrend or near a support level. 

• Indicates Buying Strength

The three consecutive bullish candles with each one opening higher than its previous candle represent a strong and persistent buying pressure from the bulls. This pressure can indicate a major shift in market sentiment.

• Confirms Support Levels

When the candlestick pattern appears near a major support level, it usually indicates that the support level would hold even when the selling pressure mounts. The appearance of the pattern near the level could lead to a bounce.

• Makes Risk Management Easier  

The three white soldiers candlestick pattern has a well-defined structure. This makes risk management easier by providing clear entry, stop-loss, and exit points.

How to Trade the Three White Soldiers Candlestick Pattern?

Speaking of entry, exit, and stop-loss points, let us explore how you can incorporate the three white soldiers into your trading strategy.

• Entry Point

The ideal entry point when you spot the three white soldiers on a candlestick chart is typically after the third bullish candle forms. When entering into a long position after the third candle, remember to confirm the trend reversal with volume. A spike in the trading volume after the pattern formation adds credibility to the bullish reversal.

Additionally, you can also use other technical indicators like the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) for confirmation. For instance, if the RSI shows oversold conditions right when the three white soldiers appear, it often implies bullish trend reversal.

Instead of entering a long position immediately after the candlestick pattern forms, you could wait for a small pullback and enter when the market bounces back.

• Stop-Loss Point

Setting a stop-loss point is essential to manage risk when trading any candlestick pattern, including the three white soldiers. Here is a quick overview of the ideal stop-loss points for candlesticks trading.

• Below the Lowest Point

When trading the three white soldiers, you could consider setting a stop-loss just below the lowest point of the three bullish candles. This way, if the bullish reversal fails to materialise, your position will be protected from severe losses.

• At a Set Percentage

Alternatively, you may consider setting a stop-loss at a predetermined percentage below the entry point. For instance, if the maximum amount you are willing to lose is 10%, and you enter into a long position in an asset at Rs. 2,100, then the stop-loss point can be placed at Rs. 1,995 [Rs. 2,100 - (Rs. 2,100 x 5%)].

Now, it is important to remember that the percentage-based stop-loss must always be determined only after considering factors like risk tolerance and the asset's volatility. For example, you may place a wider stop-loss if you have a high-risk tolerance level or if the asset is highly volatile and vice versa. 

• At or Near a Support Level

If there is a clear support level below the three white soldiers candlestick pattern, you could consider placing a stop-loss order at or near it to limit potential losses.

• Exit Point

Knowing when to exit a trade is just as important as knowing when to enter. Let us explore some common exit points when trading candlestick patterns like the three white soldiers.   

• Based on Pattern Height

Measure the height of the entire candlestick pattern and project it upwards on the price chart from the breakout point. The top-most point of the price projection could be your potential exit point. 

• At or Near a Resistance Level

If there is a clear resistance level above the three white soldiers pattern, you could consider exiting the trade at or near this level.

• Trailing Stops

If you are unsure of the maximum possible price movement, consider setting a trailing stop. A trailing stop automatically moves up as the asset price rises, allowing you to capture price advances while simultaneously protecting your profits.  

• Reversal Signals

The exit point can be set based on the appearance of reversal candlestick patterns or other technical indicators that might suggest the end of the uptrend. 

Conclusion

The three white soldiers are one of the most easily recognisable multiple candlestick patterns. Since it involves three bullish candles, it is often considered to be a strong sign of a bullish trend reversal.

That said, it is important to remember that while the three white soldiers can be a reliable indicator of trend reversal, it should not be used alone. You must always consider it along with other technical indicators and prevailing market conditions before making any trading decision.

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