What is the Three White Soldiers Candlestick Pattern?

Candlestick patterns are an important aspect of candlestick charting, which has grown in popularity over the past two decades. One of the most common candlestick patterns that traders look out for in the financial markets is known as the Three White Soldiers pattern, which often indicates a strengthening bullish sentiment and that market conditions are ripe for upward price movement. Understanding this pattern can help you know what to expect in the future so that you can trade more effectively.

What is the Three White Soldiers Candlestick Pattern?

Also known as a long-legged doji, a Three White Soldiers candlestick pattern consists of a long white candlestick followed by two smaller black candles. The key difference between a long-legged Doji and other common candle patterns is that there’s no upper shadow present on any of these candles.

This pattern consists of three consecutive bullish candles, where each one has a relatively long upper shadow and small lower shadow. The name is derived from a Japanese folktale about three soldiers who appear on a battlefield after many had given up hope of winning. Like these soldiers, these candlesticks mark a turnaround from what appeared to be bearish market conditions...

In technical analysis, traders will use Three White Soldiers candlesticks to predict reversals from downtrends. Three White Soldiers can be spotted at either an uptrend or downtrend trendline. When it appears at an uptrend, it indicates weakening demand for shares—which usually coincides with a reversal toward lower prices or even an ultimate reversal into a downtrend. In short, Three White Soldiers candlesticks are considered bullish when they appear in rising markets and bearish when they appear in falling markets.

How to identify the Three White Soldiers Candlestick Pattern?

A Three White Soldiers Candlestick consists of three long, white real bodies that are separated by two black real bodies. The third long white body should be wider than the first two.

It is formed when three consecutive candlesticks are formed with long bodies:

• The first candlestick should be black, i.e., it opens above the opening price of its prior candlestick, but closes below it.
• A second white candlestick must open above its prior’s close and must also close higher than its open position.
• A third white candle should form with a long body that should remain within or slightly above its previous two candles' range for that day.

A Three White Soldiers candlestick pattern indicates that a temporary bottom has been made in prices after a prolonged downward price movement. A break above the resistance level confirms upward trend reversal and suggests prices will continue to rise.

Therefore, the Three White Soldiers candlestick is most effective when used with other technical indicators. This is significant because it indicates a continuation of an uptrend despite several small pullbacks. As such, traders can use Three White Soldiers as a signal to enter long positions.

How to Trade using Three White Soldiers Pattern?

The Three White Soldiers is a bullish continuation pattern that's formed after an upward price trend. You can trade this pattern using a three-step approach: 1) confirm and identify 2) place a buy order and 3) set a stop loss. Additionally, you may want to avoid placing your buy order at either of its extremes – top or bottom – as these tend to fail more often than not; look for confirmation of new highs/lows before taking a position.

You can enter into long positions when you see three consecutive white candlesticks with strong bodies appear right after a downtrend has occurred, or when five consecutive bullish candlesticks are formed, regardless of color. Additionally, Three White Soldiers is a bullish reversal pattern, which means that there is a higher likelihood that prices will continue to rise after its formation. In other words, you can trade using the Three White Soldiers is a buy signal, whilst a fourth or subsequent long white candle may represent a weaker selling opportunity at best and an outright reversal at worst.

Final Words

Understanding candlesticks is an incredibly useful tool in any trader’s arsenal and a crucial step towards making good trades. Whether you're a day trader or an investor, it's important to have a solid understanding of candlestick patterns. Armed with that knowledge, you'll be able to identify these patterns and know when they should be a bullish or bearish indicator for a trade.