Sign In The pattern indicates weakness in the long-term downtrend and the potential emergence of an uptrend as the bear’s exit the market. It also implies that bears are exiting the market after pushing prices lower and reaching a point of strong support. The candles must also have big bodies and small wicks, affirming a buildup in buying pressure with the entry of bulls into the market. The pattern creates a staircase-like structure as the price increases, resulting in higher highs. For example, if you see three white soldiers at the bottom of a downtrend and you think a reversal is coming, you can test the signal using the RSI. This indicator can help you to predict price trends because it tracks the speed and momentum of the market.
- In this case, bulls entered a buy position once the third candle closed, anticipating price edging lower.
- It also implies that bears are exiting the market after pushing prices lower and reaching a point of strong support.
- On the weekly chart of Apple, not even a single occurrence of the pattern was found.
- The three white soldiers is the name of a multiple candlestick formation that technical traders use to analyze charts such as stocks, commodities, currencies, etc.
- Like the other examples, note the massive volume signature on these Three White Soldiers marching to new highs.
Consequently, technical analysts rely on momentum indicators to ascertain whether the momentum has changed from bearish to bullish. In the above example, a trader will enter a long position when the third bullish candlestick is completed with a stop loss at or below the lowest level of the first candle. Take profit should be placed at the highest level of the previous bearish trend. It, therefore, would be helpful to confirm the pattern with other technical analysis tools. In this section, we will show you two Japanese candlestick charting techniques to confirm a trend reversal. Like many other advanced candlestick chart patterns, the three white soldiers candle pattern on its own might not be sufficient to indicate a trend reversal and enter a buying position.
However, the silver lining in the EYES example is that we did retest the high of the third soldier candle two times, and both times held the new trend well. Otherwise, you might wait for a pull back to retest the demand in these three candles and take your long position there. After a steep selloff into a support zone, DK prints three white soldiers with decent volume and the stock shot back up to the most recent swing high. The stock had a minor pop back up to the downtrend line only to drag lower into the close. The stock had a high volume down event followed by three white soldiers.
Arjun is also an certified stock market researcher from Indiacharts, mentored by Rohit Srivastava. The Three White Soldiers and Three Black Crows patterns are similar in their appearance, with three consecutive candles and little to no wicks. The difference lies in their market sentiment, occurrence, and interpretation, which can lead to different trading strategies. This pattern is generally considered a positive sign for traders but has some potential disadvantages.
What Can Be Done to Improve the Reliability of the Three White Soldiers Chart Pattern?
This is because the large and lengthy candle bodies form big bar ranges, which make an eye-catching pattern. You’ll most likely see this candlestick pattern at the bottom of a downward trend. Let’s go over the three components that signal the bullish soldiers are marching forward. The Fibonacci retracement tool can be drawn from the highest level of the downtrend to the lowest level where price reversal occurred. Once the tool is drawn, and the three white soldiers occur, one can enter a long position and time the exit level as price trades above the 78.6% level on price moving up.
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One analysis showed that it occurred only once in close to every 3,000 candles. As you can see, it consists of three green candles, each of which opens and closes progressively higher than the last. The candles have either very small or no wicks, signaling intense buying pressure from traders, who maintain prices at the top of each session’s range. There are no gaps with this pattern, meaning that each candle should open within or at the top of its predecessor’s body. The opposite of the three white soldiers pattern is the “three black crows” pattern.
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The RSI closing above the 50 levels affirms that the market has changed from bearish to bullish and that price will likely continue increasing. HowToTrade.com helps traders of all levels learn how to trade the financial markets. The close happens above the close of the preceding candlestick, and the open happens inside its actual body. A simple visual pattern that denotes the reversal of an uptrend is represented by three black crows and the reversal of a downtrend by three white soldiers.
Two of the most effective indicators to confirm trend reversals are the Relative Strength Index (RSI) and the Stochastic oscillator. In essence, these technical analysis tools indicate overbought and oversold areas and thus, may help you to identify a potential reversal zone. On the other hand, three white soldiers indicate a shift from the bears to the bulls and is made of three consecutive bullish candlesticks.
As with many other candlestick patterns, the volume is another consideration. Low volume trading periods can result in anomalous candlesticks emerging, and if this happens with Three White Soldiers, the pattern may prove to be less reliable. The three white soldiers pattern is a widely recognized bullish reversal pattern that can give traders five main advantages in their trading strategies. Traders should look for the pattern to occur on a longer time frame chart, such as a daily or weekly chart, to confirm the strength of the bullish trend.
The conditions of the third candlestick are almost the same as the second candlestick. The risks of loss from investing in CFDs can be substantial and the value of your investments may fluctuate. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
Keep monitoring the trade consistently, adjust the stop loss, and take profit levels as the price progresses. Our watch lists and alert signals are great for your trading education and learning experience. Our chat rooms will provide you with an opportunity to learn how to trade stocks, options, and futures. You’ll see how other members are doing it, share charts, share ideas and gain knowledge. One of the biggest limitations of three white soldiers is that it can occur during periods of price consolidation after a strong move lower. In this case, the price might appear to have reversed course and start to move up only to reverse course and move lower in continuation of the long-term downtrend.
The RSI 30 gives an indication of an oversold condition and possible bullish trend, RSI 70 means an overbought condition where the market can show potential pullbacks. If you see Three Black Crows emerge while you’re holding a long position, you can take it as an indicator that you may want to close your trade. Similarly, if you’re looking for an entry point, the occurrence of the Three Black Crows pattern after a bullish runup indicates a solid time to enter a short trade. It is also important to note that no technical analysis tool or pattern is 100% accurate.
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Trading patterns are a way to simplify the markets and condense information into repeatable, visual formations…. The candles are white because positive price movement in eastern technical analysis is three white soldiers pattern represented white and not green (as most charting platforms default to these days). Because three white soldiers is a bullish visual pattern, it is used as a potential entry or exit point for a trade.
