The candlestick pattern Three White Soldiers is a highly reliable formation which occurs in both downward and upward trends and indicates that there is a high probability that the market continues to trend upward (continuation pattern) or reverse the downward trend that was dominating the market so far (reversal pattern). This pattern can be identified as follows:
- The current trend may be bullish as bearish. If the trend is upward, there is usually a decline (previous price movement in bearish) or a period of price consolidation before the market resumes its upward move through this formation.
- The price profuce three consecutive white candles.
- Each candle produces a new high.
- The opening of each candle is inside the body of the previous candle.
- Each candle closes near the peak.
Basically it can be said that this formation is the opposite of the bearish pattern “Three Black Crows” and is considered by some analysts specializing in candlestick patterns as one of the most bullish and most reliable formations out there. The Three White Soldiers pattern is stronger when it occurs after a market crash or after a period of price consolidation (no clear trend).
The first candlestick of this pattern is a reversal candle. In this case, the price continues falling until it gets closer to and important support level or to a low or the end of a market consolidation area. At this point we see that bullish forces try to take control which is manifested in the form of a long white candle. The price hike continues for two periods which occur in higher highs and each candle has its opening within the body of the former. Because the upward force take control, bearish forces close their short positions quickly contributing to this rise.
Opening prices for the candles of the second and third periods can occur anywhere in the body of the previous candle, however the pattern is stronger if these candles opening occurs above the midpoint of the of the previous candlestick (Refer to the explanation of how the big white candles can serve as supports).
The candle of the second period can open within the real body of the first period candlestick. It is considered that the validity of this pattern increases as explained above if the second candle opens at the upper half of the previous candle as this indicates that the market remains bullish. At the end of the second period the candle must close near the maximum for which the tail or upper shadow should be very small or nonexistent. This same behavior is repeated in the next period.
While this pattern has a high upside potential when the financial asset price is close supports or low levels, the trader should look very carefully if this formation is formed shortly after a sharp rise occurs in the market. Should the Three White Soldiers occur after a strong bullish movement, this may mean that there is a high or top that is close so the trader must carefully monitor the market in case a reversal candle appears as a Doji, an Engulfing Bearish or a Dark Cloud Cover.
Real Example of an Three White Soldiers