Three white soldiers candlestick pattern: In the field of stock market analysis, technical analysts utilize chart and candlestick patterns to assess stock prices and project future trends. Each pattern holds valuable information that provides insight into the market’s direction.
Through analyzing and interpreting these patterns, analysts can make informed predictions regarding the future movements of stocks, thus enabling investors to make well-informed investment decisions.
In this article, we will discuss a candlestick pattern called the three white soldiers candlestick pattern.
Three White Soldiers Candlestick Pattern – Definition
Three White Soldiers Candlestick Pattern is a bullish candlestick pattern which generally indicates a strong bullish reversal. This means that after its formation, the stock price will likely see an upward trend. As the name suggests this candlestick pattern consists of three consecutive bullish candles (green candles).
These candles open within the body of the previous candle and close above the high price of the previous candle. These candles also must not have long wicks compared to the candles’ real bodies. It is preferable for this pattern to appear after a significant downtrend as in that situation it gives a stronger bullish momentum indication.
Three White Soldiers Candlestick Pattern – Formation
Not every three-green candlestick formation can be considered as three white soldiers. A few things must be fulfilled before a three-candlestick pattern can be considered as three white soldiers and they are as follows:
- All three candles must have been long-bodied.
- The open price of each candle must be within the body of the previous candle and also close above the high price of the previous candle.
- The candles must have smaller wick in comparison to the body.
Three White Soldiers Candlestick Pattern – Psychology
The formation of this pattern generally shows a change in the market sentiment. As this pattern generally appears after a downtrend, the formation indicates a positive sentiment in that particular stock.
Three green long-bodied candles with little to no wick show an increase in the buying pressure and the sustenance of the buying pressure over three periods. This sustenance of the buying pressure is what changes the market sentiment because of which the formation of this pattern is generally seen with more buyers coming into the market.
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Three White Soldiers Candlestick Pattern – Strengths
This pattern can form in any trend but the indication would have less probability of succeeding if it appears in an uptrend or sideways trend. Also, there are situations where the formation of this pattern will have a stronger indication with a higher probability of a bullish reversal.
- Formation after a long downtrend: the formation of this pattern after a significantly long downtrend will have a stronger bullish reversal indication as it shows that the selling pressure has come to exhaustion and the buying pressure has increased in the stock.
- Formation at a strong support zone: Support zones are formed when the price of the stock has reacted to a particular price or the price went up after reaching that price more than once. A strong support zone is formed when the price has reacted to that price multiple times. So, if this pattern is formed in that zone, the price has reacted again and will not go below that price.
- When RSI is in an oversold region: If the RSI is at an oversold region when this pattern forms, then it indicates that the stock has been sold for a long time and is available for a good price to buy. This would bring in more buyers and hence there will be a higher probability of bullish momentum.
Three White Soldiers Candlestick Pattern – Trading Ideas
Traders must ensure that the prior trend before the formation of this pattern is a downtrend. Once this pattern is formed in a downtrend, the following are the guidelines to take a trade:
- ENTRY: When the price of the security goes above the close price of the third candle of this pattern, traders can take a long position.
- TARGET: Traders can exit the trade when the price of the security reaches the immediate resistance zone. Once this level is reached, one can also book partial profits in the trade and hold on to the remaining position until the next resistance level.
- STOP LOSS: Traders can place the stop loss near the close price of the first candle of this pattern.
Three White Soldiers Candlestick Pattern – Example
In the above one-day chart of AXIS BANK, we can observe the formation of the three white soldiers candlestick pattern. We can also observe that this pattern was formed after a significant downtrend. The stock saw a bullish reversal after the formation of this pattern.
At the time when this pattern was formed, traders could’ve taken a long position at Rs. 654.55 and the stop loss was at Rs. 624.15
Limitations of the Three White Soldiers Candlestick Pattern
No technical analysis is 100% accurate and there is always a chance of price moving against the indication given. This pattern might also form during a retracement while the price is in a downtrend. Thus it is important to combine this or any candlestick pattern with other technical analysis methods and place appropriate stop loss.
Three White Soldiers Candlestick Pattern – Key Takeaways
- To get an indication with a higher probability of succeeding, the prior trend must be a downtrend.
- The three consecutive green candles must have long real bodies.
- The candles must open within the previous candle’s real body and close above the high of the previous candle.
- The candles must have smaller wicks compared to the body.
- This pattern generally indicates a bullish reversal.
- Generally shows the change in market sentiment.
Read more: High Wave Candlestick Pattern
Conclusion
The Three White Soldiers candlestick pattern can appear in any market and generally indicates a bullish reversal. However, it is better to take a long trade only when the pattern appears in a downtrend. When it appears in an uptrend, it is historically observed to work better as a bullish continuation indication.
Traders should not rely solely on this pattern but also include other technical tools and indicators to confirm the price prediction. It is important to place a stop loss to minimize losses if the price of the stock moves against our analysis. What are your views about the Three White Soldiers Candlestick Pattern, please let us know in the comment section below.
Written by Praneeth Kadagi
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