How to Trade the 3 White Soldiers

Three white soldiers is a bullish reversal candlestick pattern. It signals potential weakening of a downtrend and looks much like a staircase. The candlestick pattern represents a gradual shift in market sentiment. Each candle shows stronger buying conviction, signalling that bulls are taking control. This collective confidence attracts new buyers, which amplifies the upward momentum.

Recognising the Three White Soldiers Pattern

The pattern is considered a signal that bulls are progressively pushing the price up. A period of consecutive price upticks indicates a shift in market sentiment. In a downtrend, three white soldiers appearing near a support level is considered a strong signal.

The first step to trading the three white soldiers is learning how to recognise the technical indicator. This includes, first, determining if it occurs at a point in price movement where it matters. For instance, three white soldiers in an uptrend would effectively be insignificant. To identify a meaningful pattern, look for:

• A sustained downtrend, where the candlestick before the first green candle is red.
• Three long bullish candles in a row.
• The real body of the second and third candlesticks is similar or longer than that of the first.
• The closing of each candle (sometimes even the opening price) is higher than that of the previous candle.
• The candles have tiny wicks, indicating that there is almost no price action outside of the candlestick range during its period. 

Formation of The Three White Soldiers

Green candlesticks with small or no shadows indicate that bulls held the price close to the top of the range for most of the trading session. When this happens for three consecutive sessions, traders consider it a strong sign of a potential bullish reversal. Often, a Doji or an Inverted Hammer precede the three white soldiers, which can alert traders to an upcoming bullish trend. It can also form in continuation with a bullish engulfing, where the engulfing candlestick becomes the first soldier.

Advantages of the Three White Soldiers

• The candlestick pattern spans three time periods, which strengthens the signal for a shift from selling pressure to buying momentum after a downtrend.
• A rising trading volume inherently strengthens the signal, often acting as a confirmation.
• The three white soldiers clearly indicates entry and exit points, as well as risk management levels.

Limitations of the Three White Soldiers

• In low-volume conditions, price swings are wider but may be inconclusive. This means that candlesticks can be bullish and long without signalling a trend reversal. 
• The candlestick pattern forming in an uptrend indicates exhaustion, which beginner traders may confuse with a trend continuation signal, especially after a small pullback.

Three White Soldiers in Action

Gold prices declined in the first two weeks of April 2025. The three white soldiers pattern formed on the daily price chart from April 9 to 11, indicating a potential uptrend. Note that this was after a Gravestone Doji formed on April 8, 2025. Although a Gravestone Doji in a downtrend is of little significance, it does hint towards bulls attempting to overpower bears in the market. With the three white soldiers following the doji, the bulls showed where the broader market sentiment was headed. The yellow metal reached a record high of $3,500 on April 22, with the bullish trend continuing for the next 6 months.

Source: https://candlecharts.com/candlestick-chart-look-up/gold-candlestick-chart/ 

Trading the Three White Soldiers

Begin by identifying the pattern, noticing the colour of the candlesticks, their close levels, and their relative heights. Once the pattern is confirmed, here’s how to trade the pattern:

Step 1: Confirm the Signal

Technical indicators can generate false signals. Therefore, confirming a signal is essential before taking a position. To confirm a bullish reversal, you can use the RSI+MACD combination. You can also use On-Balance Volume to ensure that trading volume is sufficient to mean that the bulls are indeed strong.

If the third candlestick is smaller than the first two, it might not be a reversal. Remaining cautious is important.

Step 2: Determine Entry Points

For an aggressive approach, you could choose an early entry point at the close of the third candlestick. A more cautious approach considers resistance at a Fibonacci level, and traders tend to enter when the price breaks above this.

Step 3: Risk Management

Setting a stop-loss helps manage the risk of a reversal or pullback. Traders often set stop-loss levels just below the recent swing low or a key support, using Fibonacci levels. Consider using trailing stops to gain more control as the trend progresses. You could use the new resistance level or your profit target.

Step 4: Monitor the Trade

The markets can pivot at any time. Despite risk management measures, monitoring your positions is necessary. This could help you take partial profits or rethink the stop-loss.

To Sum Up

• The three white soldiers is a multi-candlestick pattern.
• It signals a potential bullish reversal after a sustained downtrend.
• The pattern is more reliable when it forms near a key support level with high volume.
• It offers clear entry and exit guidance but may give false signals in low-volume conditions.
• A Doji, inverted hammer or bullish engulfing, often appears before the pattern, hinting at a potential reversal.
• Traders can confirm the signal using RSI, MACD, or OBV, and set stop losses below the recent support level.

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