This case study of SoFi Tech’s stock (SOFI), a real-life technology company, demonstrates the three white soldiers pattern in action. SoFi underwent a massive rally, shooting up 124% in the middle of 2023. Recently though, this SOFI saw a decline due to ongoing debates over loan valuations. Over the next few weeks, the stock began to fall, moving from about $7.40 to about $6.60.

Three White Soldiers Pattern: What Does it Mean?

The three white soldiers pattern is a widely recognized bullish reversal pattern that can give traders five main advantages in their trading strategies. The three candle rule refers to a trading strategy that involves analyzing three consecutive candlesticks to determine potential market trends or reversals. In thinly traded markets, the pattern may be less reliable due to the potential for false signals. Therefore, it is crucial to use this pattern alongside other technical analysis tools to improve the accuracy of trading decisions.

If you look carefully enough, you will soon start to notice recurrent patterns that get your attention, which have the potential to become a new trading strategy. Professional stock traders go long on a break of the high of the third candlestick with a stop loss set below the first candlestick. Data-driven crypto traders should pass on this pattern as there are not enough daily data to determine the best three white soldiers trading strategy with any statistical significance.

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• The three white soldiers pattern serves as a strong bullish indicator, often signaling a reversal in a downtrend.
• Unlike cryptocurrency traders, stock and forex can use the data to outperform traditional trading methods significantly.
• The Base Line can serve as an entry point, while the Conversion Line can serve as your cut loss point.
• Prior reversal signals like doji candles may precede the emergence of this pattern.
• Hence, the pattern cannot serve as a sell signal if it occurs in an uptrend, as it is not recognized as the three white soldiers in this context.

Relying solely on the Three White Soldiers pattern without considering other factors can be like driving with blinders on. It might overlook critical market conditions or fundamental analysis, leading to misinterpretations. 1) The model will be considered stronger if the upper shadows of the candles are extremely small or completely absent.

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Thomas’ experience gives him expertise in a variety of areas including investments, retirement, insurance, and financial planning. Now, we could turn this tendency into an advantage, by using an indicator that shows when a market has moved too much in either direction. Earlier in the guide, we touched on using bar ranges to improve the three white soldiers. If you’re interested in knowing more, we recommend that you read our guide to the ADX indicator.

In essence, the difference between these two patterns is like night and day. Three White Soldiers signal a bullish trend, while Three Black Crows indicate a bearish one. So, whether you’re following the soldiers or axitrader review listening to the crows, it’s crucial to understand the pattern you’re dealing with to make informed trading decisions in the financial wilderness. Following a downtrend, day one opens at $1.077, closing at $1.078; day two opens at $1.078, closing at $1.079. This succession of white candles showcases a strong shift in sentiment towards a bullish trend.

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This bullish candlestick formation is characterized by three consecutive white (or green) candles, bearish symmetrical triangle pattern each with an open and close higher than the previous one. The above image shows Tata Motors’ price chart on a monthly time frame. The stock was in a downtrend and made a low of INR 265 in February 2016. The stock price increased significantly in March 2016, as indicated by the first green candle, which had an opening price of INR 301 and closed at INR 386. The stock made three consecutive bullish candles, and the Three White Soldiers pattern was completed in May 2016, when the stock price closed at INR 459.

Visually resembling three advancing soldiers marching in unison, it conveys strength and momentum in the market, reflecting a shift in sentiment from bearishness to optimism. Traders often interpret this pattern as a signal of a potential trend reversal or a strong continuation of the existing upward trajectory, making it a valuable tool in the trader’s arsenal. Embracing the Three White Soldiers candlestick pattern is akin to having a trio of steadfast allies on the trading battlefield, bolstering confidence and paving the way for profitable ventures.

How Can You Trade the Three White Soldiers Candlestick Pattern?

Hence, this results in a significant price increase within just three trading sessions. For more information on candlestick patterns, please check out our free technical analysis section devoted to these great trading tools. The opposite of the three white soldiers is the three black crows candlestick pattern. Three black crows consist of three consecutive long-bodied candlesticks that have opened within the real body of the previous candle and closed lower than the previous candle. Whereas three white soldiers catch the momentum shift from the bears to the bulls, three black crows show the bears taking control from the bulls. The same caveats about volume and additional confirmation apply to both patterns, though confirming volume is more important in the bullish pattern.

The market can be unpredictable and subject to sudden changes in direction or unexpected most traded commodities news events. Traders should always use risk management strategies to minimize potential losses, such as stop-loss order and position sizing. Not every appearance of the Three White Soldiers pattern guarantees a strong upward trend. False signals can occur, resulting in losses if traders act solely based on this pattern.

Instead, the ‘best’ time frame depends uniquely on your trading strategy, style, and risk management. On the other hand, if you are a ‘day trader’—someone who buys and sells within the same day—then the hourly time frame often proves to be the most reliable for using the pattern. The three white soldiers pattern usually appears in the early stage of a rising market or after sideways trading.

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• The significant move higher could also reach key resistance levels where the stock could experience a period of consolidation before continuing to move higher.
• This pattern is more than a mere sequence on a chart; it is a pivotal element in the intricate puzzle of market analysis, offering essential insights for informed and potentially lucrative trading decisions.
• We know that the three white soldiers is interpreted as a bullish signal that indicates the market has reversed from a downward trend to an upward trend.

Market participants perceive this pattern as a trustworthy bullish reversal pattern since it signals that buyers are gaining control of the market and driving prices upward. Apart from reflecting a shift in the trend, the pattern also reinforces that the price action is shifting direction. The pattern’s limitation is that the three candlesticks reflect the price movement far away from the latest high or low. Thus, it is challenging to trade the pattern with respect to risk tolerance. Three white soldiers is a bullish candlestick pattern signaling a strong uptrend reversal, typically after a downtrend.

Thus, a three white soldiers pattern forms, which indicates that the market has bottomed out and rebounded. If a subsequent downward pullback happens, as long as it does not fall below the lowest point of the first red candlestick among the three white soldiers pattern, users can keep holding with confidence. No, the Three White Soldiers pattern is generally considered a bullish reversal signal and a buy signal. The pattern consists of three consecutive long bullish candles with higher closes and small or no upper wicks, indicating that the bulls are taking control and pushing prices higher.