What Do Three White Soldiers Mean?
Three white soldiers is a bullish candlestick pattern that is used to predict the reversal of the current downtrend in a pricing chart. The pattern consists of three consecutive long-bodied candlesticks that open within the previous candle's real body and a close that exceeds the previous candle's high. These candlesticks should not have very long shadows and ideally open within the real body of the preceding candle in the pattern.
Key Takeaways
- Three white soldiers are considered a reliable reversal pattern when confirmed by other technical indicators like the relative strength index (RSI).
- The size of the candles and the length of the shadow is used to judge whether there is a risk of retracement.
- The opposite pattern of three white soldiers is three black crows, which indicates the reversal of an uptrend.
What Do Three White Soldiers Tell You?
The three white soldierscandlestick pattern is typically observed as a reversal indicator, often appearing after a period of price decline. This chart pattern suggests a strong change in market sentiment in terms of the stock, commodity, or forex pair making up the price action on the chart.
When a bullish candle closes with small or no shadows, it suggests that the bulls have managed to keep the price at the top of the range for the session. Basically, the bulls take over the rally all sessionand closed near the high of the day for three consecutive sessions. In addition, the pattern may be preceded by other candlestick patterns suggestive of a reversal, such as a doji or a hammer.
Here is an example of three white soldiers appearing in a pricing chart for the VanEck Vectors Fallen Angel High Yield Bond exchange-traded fund (ETF).
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The ETF had been in a strong bearish downtrend over the course of several weeks before the three white soldiers pattern marked a sharp bullish reversal. The pattern may suggest that the rally will continue, but traders should also look at other relevant factors before making a decision. For example, the stock may have reached an area of resistance at the conclusion of the formation of the pattern or the rise might have been on low volume which is not an indication of strength.
Example of How to Trade Three White Soldiers
Because three white soldiers is a bullish visual pattern, it is used as a potential entry or exit point for a trade. Traders who are short on the security look to exit and traders who are waiting to take a bullish position see the three white soldiers as an entry opportunity.
When trading the three white soldiers pattern, it's important to note that the strong moves higher could create temporary overbought conditions. The relative strength index (RSI), for example, may have moved above 70.0 levels. In some cases, there is a short period of consolidation following the three white soldiers pattern, but the short- and intermediate-term bias remains bullish. The significant move higher could also reach key resistance levels where the stock could experience a period of consolidation before continuing to movehigher.
The Difference Between Three White Soldiers and Three Black Crows
The opposite of the three white soldiers is the three black crows candlestick pattern. Three black crows consist of three consecutive long-bodied candlesticks that have opened within the real body of the previous candle and closed lower than the previous candle. Whereas three white soldiers catch the momentum shift from the bears to the bulls, three black crows show the bears taking control from the bulls. The same caveats about volume and additional confirmation apply to both patterns, though confirming volume is more important in the bullish pattern.
Limitations of Using Three White Soldiers
Three white soldiers can also appear during periods of consolidation, which is an easy way to get trapped in a continuation of the existing trend rather than a reversal. One of the key things to watch is the volume supporting the formation of three white soldiers. Any pattern on low volume is suspect because it is the market action of the few rather than the many.
To combat the limitation of visual patterns, traders use the three white soldiers and other such candlestick patterns in conjunction with other technical indicators like trendlines, moving averages and bands. For example, traders may look for areas of upcoming resistance before initiating a long position or look at the level of volume on the breakout to confirm that there was a high amount of dollar volume during the move. If the pattern occurred on low volume with near-term resistance, traders should until there is further confirmation of a breakout to initiate a long position.
What Other Chart Patterns Are Similar to the Three White Soldiers?
Several other chart patterns bear similarities to the three white solders, each with its own nuances and predictive capabilities. Some of these include the three black crows, the bullish engulfing pattern, morning star, hammer and inverted hammer, the piercing line, the abandoned baby, tweezer bottoms and tops as well as the double bottom and double top.
What Can Be Done to Improve the Reliability of the Three White Soldiers Chart Pattern?
Improving the reliability of the three white soldiers chart pattern involves a multi-faceted approach that incorporates additional technical indicators, volume analysis, and contextual market conditions.
What Are the Best Assets to Trade with the Three White Soldiers Chart Pattern?
The three white soldiers chart pattern is a versatile technical indicator that could be applied across various asset classes. However, its effectiveness may vary depending on the asset's liquidity, volatility and market conditions. Some asset classes where this pattern is commonly used are stocks, forex, commodities, ETFs, futures and options.
What Is the Best Timeframe to Use the Three White Solders Chart Pattern?
The effectiveness of the three white soldiers chart pattern can vary depending on the timeframe used for analysis. The best timeframe largely depends on the trader's style and risk tolerance. Generally, the three white solders pattern is often considered more reliable on longer timeframes such as the daily or weekly charts.
What Indicators Can Be Used in Conjunction With the Three White Soldiers Chart Pattern?
Using the additional technical indicators alongside the three white soldiers chart pattern has the potential to enhance its reliability and provide a more comprehensive trading strategy. Some commonly used indicators that complement this pattern are the Relative Strength Index (RSI), moving averages, Bollinger Bands, Volume Oscillator, Moving Average Convergence Divergence (MACD), Stochastic Oscillators, Fibonacci Retracement Levels, the Average Directional Index (ADX), the Ichimoku Cloud and Pivot Points.
The Bottom Line
The three white soldiers pattern serves as a strong bullish indicator, often signaling a reversal in a downtrend. However, traders should exercise caution and corroborate this pattern with other
technical indicators and volume data to avoid false signals. It's not a standalone tool but can be highly effective when used in conjunction with other technical analysis methods.
