The Three White Soldiers pattern is a widely recognized candlestick pattern among traders for its potential. This article will provide valuable insights into incorporating this pattern into your trading strategy. Despite its subtle nature, we will offer a comprehensive guide on how to spot the Three White Soldiers pattern and leverage it in your trading approach.
In addition to this, a well-rounded trader should have a diverse portfolio. Therefore, we will provide you with three alternative trading approaches ideal for trading in various markets: Stocks, Cryptocurrencies, Commodities, Forex, and even NFTs.
However, it is important to note that successful trading with candlestick charts goes beyond recognizing patterns. You must also consider the context of risk and reward before making a trade based solely on a candlestick pattern. Understanding risk/reward analysis is crucial for making informed trading decisions.
The pattern known as the Three White Soldiers is the opposite of the Three Black Crows pattern comprises three long white (green) candles with consecutively higher closes. The name is derived from the military, a common theme among Japanese candlestick pattern names. When this pattern emerges, it usually indicates that signs of strength lie ahead, especially when observed at a low price or after a period of stable prices.
The Three White Soldiers pattern is characterized by a gradual and steady rise, with each green candle opening within or near the prior session and the close near the highs. It is essential to exercise caution when the candlesticks are excessively extended, as it may suggest an overbought market. In addition, if the second and third candlesticks exhibit signs of weakness, it may indicate an advance block pattern, implying that the rally may be encountering challenges, and it is advisable to protect long positions.
Furthermore, if these developments occur during a prolonged uptrend and the upper shadows are longer, it may suggest that the market is losing momentum. When two long green candles form a new high and are followed by a small real body, it is referred to as a stalled pattern, which indicates that the bulls could lose momentum. Although these two patterns are not typically top reversal patterns, they may precede a price decline. Consequently, they should serve as indicators to protect long positions rather than as signals to short.
The observed candlestick pattern displays a representation of the Three White Soldiers. Notably, this pattern emerges following a more extended downtrend, followed by a sideways market. After a small breakout occurred, the pattern materialized, but its confirmation was not evident until the 12th of March 2023, when the first long green candle of the pattern emerged.
Despite the pattern’s imperfection, as the first and last candles finished with a shadow, the candles’ overall length justifies deeming it a valuable trade entry. Moreover, the pattern does not resemble an Advance Block or Stalled Pattern. The pattern was confirmed, and after a brief consolidation period, the price surged, confirming the bullish trend.
The next three universal strategies could be applied to any asset class.
In this strategy, we utilize the SuperTrend indicator, which we are using on the chart of the cryptocurrency Fantom.
The SuperTrend indicator identifies entry/exit points based on the price’s relationship with a band calculated using the average true range and a moving average. It is plotted above or below the closing price to signal a buy or sell. You can see it on the chart as this thicker line changes from brown to green along the candlesticks. The indicator changes color based on whether one should buy or sell. If the SuperTrend indicator moves below the closing price, it turns green, signaling a buy entry point.
This case presents all the necessary signs for a Three White Soldiers Pattern. A longer downtrend is followed by a sideways market where the SuperTrend indicator changes color, eventually displaying the Three White Soldiers Pattern on the 8th of January, 2023. Simultaneously, the SuperTrend indicator clearly flips into the green trend. The confirmation signals are substantial, including a large candle with a non-existent upper shadow on the last candle completing the Three White Soldiers Pattern and the SuperTrend indicator flipping.
This indicates a robust SuperTrend; with leverage, one could have made a significant profit on this trade. From 0.2326$ to 0.6276$, it would truly be a Super Trade. Nevertheless, implementing a stop-loss of around 0.200$ would have been prudent.
Additionally, it is interesting to note that in February, the upward trend appears to be reversing, indicating the opposite pattern of the Three Black Crows.
As we are trading candlestick patterns created in Japan by the notorious trader Homma, we also thought to show you a very popular Japanese indicator, the Ichimoku Cloud. The Ichimoku Cloud is a popular Japanese indicator that can be useful for you, especially on commodities. Here we wanted to show a sample live scenario on the Gold (XAU) chart.
The cloud provides information on one chart, including support and resistance levels, momentum, and trend direction.
For the Three White Soldiers pattern, a preceding downtrend is necessary. All line indicators on the chart suggest that an uptrend is already underway, but the cloud is still in a small red trend, indicating that a larger reversal may be coming. On December 1, 2022, a Three White Soldier pattern forms, providing a potential entry point. Although the cloud has not yet turned green, all other indicators point to a reversal, and a stop-loss can be used to protect against potential losses. As it turns out, the analysis is correct, and gold rallies from $1799 to almost $1960, resulting in a profitable trade.
The final trading strategy combines the RSI and the MACD, which are classic indicators and provide a lot of value. These indicators can be used in almost every market. In this case, we show a live scenario on the Mutant Ape Yacht Club NFTs (MAYC) 4-hour chart.
The Relative Strength Index (RSI) measures the strength and momentum of an asset’s price action, while the Moving Average Convergence Divergence (MACD) shows the relationship between two moving averages. When the RSI reaches above 70, the asset is overbought, while a reading below 30 suggests it’s oversold. The most important signal it provides is a crossover of the MACD line and the signal line, indicating a change in momentum and potential buy or sell signals.
The market had been trading sideways, a requirement for the Three White Soldiers pattern to appear. On February 12, there was an indication of the pattern. However, it wasn’t a proper confirmation as it was an Advanced Block or Stalled Pattern, which we described at the beginning of this article.
On February 14, 2023, the Three White Soldiers pattern finally appeared, and the indicators supported a trade. The MACD did not give in, and the blue line did not cross the orange line, indicating that the downward push was not confirmed. If the blue line did cross the orange line, we should not have taken the trade, as it would be a bearish indication. Also, the RSI didn’t show an oversold sign but still moved up. Usually, the RSI is oversold when it goes above 70, but in our case, it was around 60.
Overall, the indicators and the pattern pointed towards a good opportunity to go long on this trade and make a profit. A stop loss would be placed around the 15.75 level. The trade was a good entry point, as the market made new highs and stayed there.
When trading candlestick patterns, having the right platform is crucial to success. Here are some key factors to consider when choosing the best platform:
If you’re looking for a platform that offers all of these features, Morpher is a great choice. It’s specifically designed to provide the best trading experience possible, with maximum flexibility, a wide range of assets to trade, great indicators and an advanced chart view, infinite liquidity, and zero fees.
In conclusion, these patterns have proven valuable tools for making profitable trades. By incorporating the Three White Soldiers patterns into your trading strategy and using technical indicators to identify market trends, you can maximize your chances of making informed trading decisions.
Disclaimer: All investments involve risk, and the past performance of a security, industry, sector, market, financial product, trading strategy, or individual’s trading does not guarantee future results or returns. Investors are fully responsible for any investment decisions they make. Such decisions should be based solely on an evaluation of their financial circumstances, investment objectives, risk tolerance, and liquidity needs. This post does not constitute investment advice.
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