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Understand the Three White Soldiers Candlestick Pattern

Introduction:

Candlestick patterns are pivotal in stock trading, providing traders valuable insights into market sentiments and potential price movements. These patterns are formed by arranging one or more candles on a price chart and offer visual representations of market behaviour in various trading sessions. 

One of the key advantages of candlestick patterns is their ability to aid traders in identifying potential trend reversals or continuations and determining suitable entry or exit points for trades. Additionally, they can convey both bullish and bearish signals, making it easier for traders to take well-informed trading positions.

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What is the three white soldiers candlestick pattern?

The appearance of various candlestick patterns conveys different signals. For example, a hammer or doji pattern suggests indecision in the market while a bullish engulfing pattern could signal a potential reversal to an uptrend. By identifying and understanding the significance of these patterns, you can enhance your ability to predict market movements and adjust your trading strategies accordingly.

This article talks about the three white soldiers, one of the most significant candlestick patterns you could observe on a price chart. It is characterized by three consecutive bullish candles (which can be identified by their green or white colour), and its appearance suggests a strong shift in market sentiments from bearish to bullish. 

Continue reading to delve into the intricacies of the three white soldiers' candlestick pattern and explore its formation, significance, and suitable trading strategies. 

Formation of the three white soldiers' candlestick pattern

The three white soldiers candlestick pattern typically appears at the bottom of a downtrend and signals a potential reversal of the prevailing bearish sentiments. The pattern consists of three consecutive long bullish candles, hence the name ‘the three white soldiers’, each opening within the body of the preceding candle and closing above its high. The overall effect is a series of progressively higher closing candles, reflecting the increasing dominance of buyers in the market.

Below are the key characteristics of the three candles involved in the three white soldiers pattern:

  • First bullish candle

The first bullish candle of the three soldiers pattern occurs after a prolonged downtrend. That is why it often follows a bearish candle and marks the beginning of a trend reversal to an uptrend. This candle is formed due to quick bullish momentum and can be identified by its green or white color and a long body with short or negligible wicks on either end.

  • Second bullish candle

The second bullish candle of the three soldiers pattern indicates a continuation of the bullish trend reversal. It suggests that the buyers are gaining momentum, resulting in a steep price surge. Typically, the second candle opens within the body of the first candle above and closes above its high. 

  • Third bullish candle

The third bullish candle of the three soldiers pattern indicates that the buyers have taken full control of the stock, confirming the uptrend's continuation. A strong bullish momentum usually follows the appearance of this candle in the stock. Like the second candle, the third candle opens within the body of the preceding candle and closes above its high. 

Significance and trading strategies

The three white soldiers' candlestick pattern is a potential bullish reversal signal, indicating a strong shift in market sentiments. It suggests that the buyers have overpowered the sellers and the stock could witness a steep price surge shortly. The appropriate trading strategies for this pattern include:

  • An opportunity to enter a long position

The formation of the three white soldiers' pattern can be an opportune moment to enter a long position. It is a strong enough signal of a bullish trend reversal. Those who are short can take an exit. 

  • Look at the strength of candles

The length of the three candles indicates the strength of the upcoming bullish momentum. The longer the candles are, the stronger the potential uptrend will be.

  • Confirm with other technical indicators

You must confirm your trading decisions with other technical indicators, such as volume, RSI, and moving averages. Sometimes, the stock can move into the overbought zone, leading to false signals. 

To conclude

The three white soldiers candlestick pattern is one of the most vital bullish reversal signals. You can use it to interpret a potential uptrend and enter a long position. However, you must confirm your trading decisions with other technical indicators to mitigate the risks associated with false signals.

 

Related Articles:  Difference Between Shooting Star And Inverted Hammer Candlestick Patterns | What is a Doji Candlestick Pattern And How to Trade With It

 

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