How to trade the three white soldiers pattern

• What is the three white soldiers pattern?
• How to trade a three white soldiers
• What is a three black crows?

What is the three white soldiers pattern?

The three white soldiers pattern is a candlestick formation that appears after a bear run, signalling that an uptrend may be about to take over. Technical traders see the three white soldiers as a strong bullish reversal pattern.

As the name implies, the three white soldiers consists of three bullish candlesticks. They should form after a long bear period, with each candle closing higher than the last – and no gaps between them.

Additionally:

• The first candle should close at around 50% of the red candle's range
• The second should close above the red candle's open
• The third is a long green stick. By now, the new bull run has begun

Ideally, the three green candles should have little to no upper wicks on them. Sustained buying pressure from bulls is driving the market up, overwhelming any resistance from bears, so each period ends at or near its highest price.

While the pattern typically forms after a sharp downtrend, sometimes you might spot a three white soldiers in a consolidating market. Here, the bullish signal isn't as strong.

Learn more about how to read chart patterns.

Practise identifying three white soldiers

The best way to learn to trade the three white soldiers candlestick pattern is to start spotting them on live markets. With a City Index demo, you get £10,000 virtual funds to trade on our live platform, with full charting functionality.

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Three white soldiers strategy

The typical three white soldiers strategy is to open a buy position shortly after the third candle completes and trade the subsequent uptrend. Before you execute your trade, though, you'll want to confirm that there's an ongoing bull run.

Unlike many other patterns, the chief issue with the three white soldiers is that an uptrend is already well underway by the end of the third candle. The danger, then, is that the move is already losing steam by the time you join it.

Confirming the three white soldiers

How do you confirm that the move isn't petering out? The simplest method is to wait a little longer – see if the uptrend continues at the start of the next period, then place a buy order.

Alternatively, you could use a technical indicator to check whether that the market isn't overbought. The relative strength indicator or stochastic oscillator are both popular options.

Finally, checking the market's volume can provide insight into the strength of a trend. If volume remains solid, then buying pressure should still be in place – and the upward move should continue.

Risk management with the three white soldiers

However, there's always the risk that a three white soldiers will fail. Bears could take over, cutting the uptrend short even after you've confirmed the pattern. Because of this, you'll want to ensure that you have a stop loss in place when you open your position.

If you've identified a support level nearby, you could place your stop just below it. Then, if the market breaks below support, your trade will automatically close.

Without support, though, you could consider placing your stop just below the close of the second green candle. If the market drops below this level, the pattern has probably failed. 

What is the three black crows candlestick pattern?

The three black crows is the bearish equivalent of the three white soldiers. It is the exact opposite pattern – with a long green candle followed by three consecutive red ones. Here, though, we have a downward reversal pattern, signalling an upcoming bear run.

Like its bullish brother, the candles in a three black crows should follow a set of rules:

• The first should end halfway down the last green candle
• The second should fall below the green candle's open  
• None should have longer lower wicks

As you can see, a bull market is quickly reversing as mounting selling pressure forces the market down.

To trade a three black crows, you open a sell position after the final red candlestick. Again, you'll want to confirm that the bear market is ongoing. This time, though, you can wait for a further downward move – or check whether the market is oversold before entering your position.

As with a three white soldiers, sustained strong volume can be a sign that the trend is in full swing.

Risk management with a three black crows

You'll be opening a short position to trade a black crows pattern, which means risk management is even more imperative. There are two typical areas to consider placing your stop:

• Above a nearby resistance level, to close your position if the market breaks beyond it
• Above the second candle's close

Three white soldiers pattern examples

Say, for example, that EUR/USD hits the end of a long bear run. In its final period, it drops 100 pips, opening at 1.0980 and closing at 1.0880. In a three white soldiers, you’d look for:

1. A green candle that climbs 50 pips to around 1.0930
2. Another green candle that closes above 1.0980
3. A final green session, with little or no upper wick

A three black crows, on the other hand, could be formed after the FTSE 100 has climbed to 7100, gaining 120 points in its last candlestick. In this example, you’d be looking for three red candles. The first falling around 60 points, the second dropping below 6980 and the third adding to the bear run.

Now you know all about three white soldiers, it’s time to put theory into practice. Get your City Index account to start trading 12,000 markets today.