The name 'three white soldiers' may sound like a military term, but it's actually a powerful pattern in trading that could signal a strong uptrend. So how do you identify and use it in your trades?
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What is the three white soldiers trading pattern?
The 'three white soldiers' is a pattern you might see on a financial chart. It's like a signal flare for traders, showing that the trend of a stock, index, or any traded asset might be about to change.
Imagine you're looking at a chart, and the prices have been falling – this is what we call a downtrend. Suddenly, you notice three long bars (these are called 'candlesticks' in trader lingo) appearing one after another, each opening a bit higher than the one before and closing higher too. These candlesticks are like our 'three white soldiers' marching upwards.
Each 'soldier' or candlestick is 'white' or 'green,' meaning the price went up during that period. The fact that there are three of them, all marching upwards, suggests that the falling prices (the downtrend) may be over and an uptrend (rising prices) might be starting.
This pattern is useful because it helps traders spot potential opportunities to buy when a new uptrend is beginning.
How to identify the three white soldiers pattern
To spot the 'three white soldiers' pattern, you're essentially playing a game of 'connect-the-dots' with the bars (candlesticks) on a financial chart.
Here's your step-by-step guide:
- Look for a downtrend: The pattern usually shows up after prices have been falling for a while. So, first, look for a chart where prices are on a downtrend.
- Spot three green candlesticks: Next, keep an eye out for three long bars or candlesticks that are green (or white, depending on the colour scheme of your chart). Each of these represents a period (like a day or an hour) when the price went up.
- Check the opening and closing prices: Each of these three candlesticks should open (start) within the body (the thick part) of the previous candlestick and close (end) at a price higher than the previous one. This gives the impression of them 'marching' upwards.
- Watch for small shadows: Ideally, these candlesticks should not have very long lines sticking out from the top or bottom (known as 'shadows' or 'wicks'). It means the prices didn't stray too far from the opening and closing prices during the period.
- Three in a row: These three 'soldiers' (candlesticks) should appear consecutively, without any different kind of candlestick interrupting them.
If all these conditions are met, you've successfully identified a 'three white soldiers' pattern. This could be a signal that the downtrend is about to reverse into an uptrend. But remember, this isn't guaranteed – it's just one clue to what might happen next. Always consider other factors and indicators when making your trading decisions.
How to trade when you see the three white soldiers pattern (example)
Let's use the GBPUSD pair as an example of how to trade when you see this pattern:
- Spot the soldiers: First, look for the 'three white soldiers' pattern on your GBPUSD chart. Remember, you're looking for three consecutive long, green (or white) candlesticks, each opening within the body of the previous one and closing higher.
- Set a buy order: Once you've identified the pattern, you can set a buy-stop order just above the high of the third soldier. This means you're telling your trading platform to buy GBPUSD if it reaches a certain price, which is a bit higher than the highest point of the third soldier. For instance, if the high of the third soldier is at 1.2310, you might set a buy-stop at 1.2311. This way, you'll only enter the trade if the price continues to rise, confirming the expected uptrend.
- Determine your exit points: Next, decide where you'll exit the trade, both if it goes in your favour (take-profit) and if it goes against you (stop-loss). For example, you might set a take-profit at 1.2400 (this is 89 pips above your entry point) and a stop-loss at 1.2250 (this is 61 pips below your entry point). This means if the price rises to 1.2400, you'll automatically sell and lock in your profit. But if the price falls to 1.2250, you'll automatically sell to cut your losses.
- Monitor the trade: After setting up your trade, keep an eye on the chart. If the price continues to rise, great! If not, and it hits your stop-loss, that's okay too. Not every trade will be a winner, and the key is managing your risk.
Summary
Remember, while the 'three white soldiers' pattern could be a helpful tool in your trading strategy, it's not foolproof. Always consider other factors and indicators when making your trading decisions. Also consider using a demo account to test out the trading strategy before risking real money. Download the Skilling demo account for free today.
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FAQs
1. What is the 'three white soldiers' trading pattern?
The 'three white soldiers' is a bullish candlestick pattern used to predict a potential reversal of a current downtrend. It consists of three consecutive long-bodied candlesticks that open within the previous candle's body and close higher than the previous candle's high.
2. How can I identify the 'three white soldiers' pattern?
To identify this pattern, look for three consecutive long, green (or white) candlesticks in a downtrend. Each should open within the body of the previous candlestick and close higher. Ideally, these candlesticks should not have very long shadows, indicating the prices didn't stray far from the opening and closing prices during the period.
3. What does the 'three white soldiers' pattern indicate?
This pattern suggests a strong change in market sentiment, typically signalling a possible end to a downtrend and the start of an uptrend. However, it's not guaranteed and should be used in conjunction with other technical analysis tools.
4. How can I trade using the 'three white soldiers' pattern?
After identifying the pattern, you can set a buy-stop order just above the high of the third soldier. Decide where you'll exit if the trade goes in your favour (take-profit) and if it goes against you (stop-loss). Monitor the trade and adjust as necessary.
5. Is the 'three white soldiers' pattern reliable?
While the 'three white soldiers' pattern could be a useful signal, it's not foolproof. Not every appearance of this pattern will result in a trend reversal. It's important to use this pattern alongside other indicators and to have a risk management strategy in place.
6. Can the 'three white soldiers' pattern be used for all types of trading?
Yes, this pattern can be used in different markets including stocks, commodities, forex, and crypto. It can also be used in various timeframes, from intraday charts to weekly and monthly charts. However, the reliability of the pattern may vary depending on the market and timeframe.
