Learn to identify the Three Soldiers candlestick pattern, a powerful bullish signal indicating potential market reversals and trading strategies.
The Three Soldiers candlestick pattern, also known as Three White Soldiers, is one of LuxAlgo’s Oscillator Matrix reversal signals in technical analysis. It indicates the end of a downtrend and the start of upward momentum. Here's what you need to know:
- Structure: Made up of three consecutive bullish candles with long bodies and minimal shadows.
- Criteria: Appears after a downtrend, with each candle opening within the previous one's body and closing higher.
- Accuracy: Studies suggest it has an 80–90% success rate in predicting reversals.
- Best Timeframes: Most reliable on daily and weekly charts.
To spot it, look for strong buying pressure, increasing volume, and alignment with technical indicators like RSI or moving averages. This pattern is widely used in stocks, forex, and cryptocurrencies to identify potential trend reversals with the Oscillator Matrix and trading opportunities.
How To Trade The Three White Soldiers Candlestick Pattern
Pattern Recognition Guide
Spotting the Three White Soldiers pattern requires careful observation and an understanding of market conditions. When identified correctly, this bullish candlestick formation can signal potential trend reversals, setting the stage for effective trading strategies discussed later.
Pattern Recognition Steps
To confirm the pattern, ensure it appears after a downtrend or during a consolidation phase. Each candle should meet these criteria:
- The first candle must show strong bullish momentum, with a long real body and minimal shadow.
- The second candle should open within the body of the first and close higher.
- The third candle must also open within the second candle's body and close higher than the previous one.
"The three white soldiers pattern is a sign of the beginning of a big trend... the three white soldiers pattern is a CONTINUATION pattern." – Artem Shashkov
An increase in trading volume across all three candles strengthens the signal, confirming buyer dominance.
Pattern Variations and Mistakes
Misidentifying this pattern can lead to poor trading decisions. Here's how to differentiate valid patterns from invalid ones:
| Valid Traits | Invalid Traits |
|---|---|
| Long real bodies with minimal shadows | Short bodies or long shadows |
| Progressive higher closes | Gaps between candles |
| Increasing trading volume | Flat or declining volume |
| Follows a downtrend | Forms during sideways movement |
| Opens within the previous candle body | Opens outside the previous candle |
The pattern becomes more reliable when it forms near support levels or above key moving averages. However, during sideways markets, it may simply reflect temporary price fluctuations rather than a genuine trend reversal.
Best Timeframes for Trading
Longer timeframes often provide clearer signals by filtering out market noise. Daily and weekly charts are particularly effective for swing traders aiming to capture major trend reversals. For added confirmation, check multiple timeframes—when the pattern aligns on both daily and weekly charts, the signal is especially strong. With the pattern identified on the right timeframe, the next section explores practical trading strategies to capitalize on it.
Trading Methods
Once you've identified the pattern, it's time to fine-tune your strategy. Use the confirmed Three White Soldiers pattern to guide your trading approach.
Entry and Exit Rules
A common entry point is at the close of the third candle—unless strong momentum is confirmed earlier through volume.
| Component | Primary Strategy | Alternative Strategy |
|---|---|---|
| Entry | After third candle closes | Early, with volume confirmation |
| Target | Next resistance level | Previous trend high |
| Exit | Use LuxAlgo’s Fibonacci Trailing Stop | Fixed take-profit and stop-loss |
| Position | Single entry | Add positions on 50% retracements |
Set take-profit levels near the next resistance zone and use trailing stops to lock in gains during strong upward trends.
Stop-Loss Guidelines
Place your stop-loss slightly below the low of the first candle or under a key Fibonacci retracement level. The exact placement depends on factors like market volatility, the timeframe you're trading, and the quality of the pattern.
Supporting Indicators
Combine these technical indicators to boost the reliability of your trade signals:
-
Momentum Indicators
- Look for bullish momentum with RSI above 30 and stochastic above 20.
- Be cautious of overbought conditions when RSI exceeds 70.
-
Trend Confirmation
- Confirm trend strength with moving averages and ADX.
- Ensure price action aligns with longer-term moving averages.
-
Volume Analysis
- Check for increasing volume across all three candles.
- Use LuxAlgo’s Volumetric Toolkit volume oscillator to measure buying pressure.
"The three white soldiers pattern is a sign of the beginning of a big trend... the three white soldiers pattern is a CONTINUATION pattern." – Artem Shashkov
When these indicators align with the Three White Soldiers pattern, your trade setup becomes more reliable. Always stick to consistent risk management practices.
Trading Examples
Let's look at real-world scenarios that illustrate the Three White Soldiers pattern in various trading settings.
Winning Trade Examples
The USD/JPY pair displayed three consecutive bullish candles after a prior decline:
| Day | Opening | Closing |
|---|---|---|
| 1 | $111.900 | $112.190 |
| 2 | $112.190 | $112.480 |
| 3 | $112.490 | $112.770 |
Both USD/JPY and EUR/USD showed steady bullish momentum after declines, validating this pattern's reliability. In the stock market, EYES demonstrated the pattern with strong volume, leading to an impressive 400% rally after the formation was complete. While a structured progression paired with solid volume often results in gains, it's important to note that not every pattern guarantees success.
Failed Pattern Analysis
Not all formations lead to profitable outcomes. For instance, MTN saw heavy selling followed by three white soldiers. However, the lack of strong volume indicated a weak setup, and the stock only experienced a small recovery before continuing its downward trend.
Market-Specific Results
In more volatile markets, like Tesla stock, traders often entered long positions at the next session's opening after spotting the pattern, with stop-loss orders set below the first candle. Similarly, CP stock showed a clear upward trend, moving from an opening price of $25.9 to a closing price of $27.2 over three sessions.
Conclusion
Pattern Benefits
The Three White Soldiers pattern offers clear advantages for analyzing markets and making informed decisions. It works well across various asset classes like stocks, forex, commodities, and cryptocurrencies. When paired with volume analysis, this pattern helps pinpoint entry points and set LuxAlgo’s Liquidation Levels, making it a valuable approach for managing risk.
"The three white soldiers, aptly named, represent a crucial turning point in a downtrend, suggesting that bullish forces are gaining the upper hand, potentially heralding an uptrend." – Tyler Corvin, Senior Trader
How to Use the Pattern
To make the most of this pattern, follow these practical steps:
- Learn to Spot the Pattern: Study historical charts of major currency pairs like USD/JPY and EUR/USD. Focus on identifying the pattern after a downtrend, where its reliability tends to be higher.
-
Combine with Technical Indicators: Use additional tools to improve accuracy. Here’s a quick guide:
Indicator Type Suggested Tools Momentum RSI, MACD, Stochastic Oscillators Trend Moving Averages, ADX, Ichimoku Cloud Support/Resistance Fibonacci Retracement, Pivot Points Volume LuxAlgo’s Volume Oscillator, Bollinger Bands - Apply Risk Management: Place stop-loss orders just below the first soldier candle. Ensure the pattern is supported by rising trading volume before committing to any positions.
