3 White Soldiers Pattern: How To Spot a Bullish Reversal

Trading the crypto market comes with its own set of technical requirements. Due to its high volatility and unpredictability, investors need to understand how chart analysis works. One key chart analysis tool that traders turn to is the 3 white soldier pattern. This popular candlestick pattern often depicts a potential upside in an asset’s price. In essence, it points to the onset of a bullish trend reversal and can be a valuable strategy traders can use in capitalizing on changing market trends.

In this article, we will explore what the 3 white soldier pattern is all about and how you can utilize it.

What Is the 3 White Soldier Pattern?

The 3 white soldier concept is a reversal pattern strategy that depicts the beginning of a potential uptrend in the price of an asset. The pattern consists of three large green candles that open and close higher than the preceding one. This pattern is likely to occur after a swing low. Furthermore, it's common for the candlestick chart to form little or no wicks at all. The absence of wicks highlights the intense buying pressure from investors, who keep purchasing an asset above its previous closing price action.

The three white soldier candlestick pattern often forms at the bottom of a downtrend, where the market reverses. But, it could also manifest after a period of price consolidation.

Why Is It Important for Traders?

The 3 white soldier pattern is one of many trading strategies that can signal a possible uptrend. This trading pattern is crucial for traders for a number of reasons. Firstly, it occurs at the tail-end of bearish market trends and could serve as a clear-cut signal for an uptrend.

By identifying this unique bullish pattern, traders can better detect the future tone of the market, as the pattern normally signifies that buying pressure is stronger than selling pressure. 

Secondly, it can be used for entry or exit positions. 

For short sellers, the pattern will serve as a signal to exit and close positions. In addition, traders can also open long positions and enter the market following a sustained downtrend. This way, traders can capitalize on the trend reversal and profit with the uptrend

How To Recognize the Pattern on a Chart?

The easiest way to identify a 3 white soldier pattern on a trading chart is by focusing your attention on prolonged periods of downwards price action. This is because the pattern tends to signal a trend reversal. Investors can look for a swing low followed by a sequence of three candles closing above the high of the previous one. Once the three large-bodied patterns are formed, traders are aware that a possible bullish trend is imminent.

To determine if a bullish reversal is imminent, traders can look through a set of key variables. These are:

• The first thing to look for is a swing low - this occurs when the price of an asset dips, which is immediately followed by two consecutive higher lows.
• After these, three green candlesticks are formed at the bottom of a downtrend.
• The candlesticks are arranged in an ascending sequential order
• Each candlestick has either a very small wick or none at all
• Each candlestick’s price that close above the high of the previous candle.

Examples of the 3 White Soldier Pattern in the Market

There are a number of instances that can lead to the formation of a 3 white soldier pattern. The most common occurrence is at the end of a downtrend. In this event, the first candlestick will form with a small wick. This is a potential signal to the onset of the second candlestick. 

The second candle forms at the point in which the first candle closes at. Once the second candlestick maps out its structure, the third similarly follows suit.

A prime example of the three white soldier pattern can be seen on the BTC/USD chart on February 15, 2023, which heralded a major bullish run. In the price action of that trading pair, the previous candlestick was bearish and trading downwards. This was before the introduction of the 3 white soldier pattern. Once this pattern is formed, a sharp bullish reversal begins to appear.

The subsequent price action after the 3 white soldier pattern was very bullish. The third candlestick enables a breakout from the support and resistance price of $21,254 and $22,266.9. To further confirm this trend reversal, the relative strength index (RSI) flips to the overbought figure of 72.10. This depicts a substantial amount of buying pressure building up on the asset.

The introduction of the 3 white soldier pattern usually allows traders to prepare for a potential end to a downtrend. However, this is not always the case so please be aware of that. In order to identify a reversal to the upside, it’s imperative you couple the three soldier pattern with indicators such as the RSI, MACD and trading volume.

What Does the 3 White Soldier Pattern Signify?

The 3 white soldier pattern identifies periods in which a trend reversal is likely to occur. The market indicator is efficient in pointing out the gradual end of the bears and the return of the bulls. 

A sharp contrast to this trading pattern is the three black crows. The 3 black crows signify the beginning of a bearish market trend. This is shown by each candlestick closing lower than the other in a sequential pattern. Both market indicators are very useful tools traders can turn to when they need to gauge the general market sentiment.

When Should Traders Use the Pattern?

3 white soldier is one of the most effective trading strategies in the stock and crypto markets. However, it is not foolproof and should not be traded in isolation. The trading pattern should be used in conjunction with other variable metrics like: 

• Market Context

As we pointed out earlier, market structure is very important. Like we mentioned above, this pattern tends to for at the tail end of a downtrend. It could also form close to a key support position, but not before. The pattern may be unreliable if this occurs during a broader market consolidation phase. Buying the asset during this period could lead to potential losses once the trend reverses. In addition, the bullish trend could easily peter out since it is operating in a strict consolidation line of the broader market. This could see it hit a major resistance line and seek support at a much lower level.

• Trading Volume Confirmation

One of the most beneficial times to use a 3 white soldier pattern is when the trading volume is relatively high. An increasing trading volume gives a perfect snapshot of the overall performance of an asset. If the asset’s volume rises and forms a pattern, the chance of a trend reversal is significantly higher than otherwise.

How To Combine the Pattern With Other Indicators for Better Results

3 white soldier pattern isn’t particularly effective alone. The best way to harness this trading strategy’s potential is to use it simultaneously with other key market indicators.

The major one used in sync with the technical analysis tool is the RSI. This is because the RSI tracks the speed and momentum of the market. Once a 3 white soldier event is activated, the RSI usually depicts this by rising towards the overbought region. 

Limitations of the 3 White Soldier Pattern

The 3 white soldier pattern is an effective techgnical analysis trading strategy. However, it does have its own issues.

The first is the fear of missing out (FOMO) effect that it portrays. 

Looking at the pattern more closely, it only works once the third and highest candlestick is formed. This usually points to a potential strong buying pressure. 

Traders entering a long position would have to buy at a higher price. They then hope that the price continues to rise to make a profit. While this is reasonable, the market could easily retrace its steps, leaving the trader with losses.

FAQs

What Do 3 White Soldiers Mean?

3 white soldiers are a set of Japanese candlestick patterns pointing to a bullish reversal after a strong bear market. They are three green candles that follow one another sequentially in an army-like position.

What Is 3 White Soldiers in Uptrend?

3 white soldiers are typically signals for the beginning of an uptrend. They help signify the beginning of a bullish reversal, as they always come up at the end of a downtrend. 

How Bullish Is Three White Soldiers?

3 white soldiers are a tripod of green candlesticks rising ever higher from the previous price. They are arranged together and always point to an imminent trend reversal.

Is the Three White Soldiers Pattern Reliable?

3 white soldiers can be a key trend reversal indicator when combined with other indicators like RSI. The switch of the RSI from a lower momentum to a high one can indicate the onset of a bull run.