What is the Three White Soldiers Pattern?

The Three White Soldiers Pattern is a bullish reversal pattern that occurs at the end of a downtrend signifying the reverse of such a downtrend. It is made up of three long-bodied consecutive bullish candlesticks with short or no wicks.

Each candlestick opens at a level slightly lower than the close of the previous candlestick and closes at a level higher than the high of the previous candlestick. If the body of the first bullish candlestick of the pattern is above the low of the preceding bearish candlestick, then that makes the resulting Three White Soldiers Pattern even a stronger bullish signal.

The Three White Soldiers Pattern occurs in markets with high volatility. For example, an event that drives a strong downtrend then gets exhausted and reverses into an uptrend.

That is how to identify the Three White Soldiers Pattern.

If you spot it at the bottom of a downtrend, just know that an uptrend just started. Prepare to trade because you can already see an available trading opportunity there.

Candlestick patterns on their own, may not be enough in making trading decisions. The Three White Soldiers Pattern works therefore works best when used together with technical indicators such as the Moving Average Convergence and Divergence (MACD) and Relative Strength Index (RSI).

In this article, we shall discuss the pairing of the Three White Soldiers Pattern with the MACD.

For Fixed Time Traders, note that this pattern is best traded on a trade duration 5 to 10 times the chart candlestick time frame.

If you have set your chart candlestick time frame to 1 minute, for example, your trade duration should range between 5 to 10 minutes. T

his ensures that you give the price enough time to move freely without the restriction of time, realizing that the price might sometimes breach your entry point but eventually still end as predicted.

Trading the Three White Soldiers Pattern paired with MACD on Olymp Trade.

We mentioned that the focus of this article would be trading the Three White Soldiers Pattern, used together with the Moving Average Convergence and Divergence (MACD). Let us see how such a combination can be used to generate trading opportunities on Olymp Trade.

Moving Average Convergence and Divergence is a trend following indicator.

It consists of a zero line, two moving averages, and a histogram.

Zero line crossovers by the moving averages signal a bullish move if from below upwards and a bearish move if from above downwards.

The crossovers between the fast and slow-moving averages signal price move towards the direction of the slow-moving average. The histogram shows how much momentum the price has at a particular moment.

As mentioned earlier Three White Soldiers Pattern occurs at the end of a downtrend to signal the end of such a trend as a strong uptrend begins.

With that foreknowledge, let us then proceed to see how the two, MACD and the pattern, are combined to generate tradable signals. The following quick steps can be applied in trading the Three White Soldiers Pattern paired with the MACD on Olymp Trade;

1. Identify the Three White Soldiers Pattern.
2. Confirm the signal with the MACD.
3. Enter a Buy position.
4. Adjust your Stop Loss.
5. Adjust your Take Profit.

1. Identifying the 3 White Soldiers Pattern.

Identifying the Three White Soldiers is quite simple. We said that the pattern is made up of three long-bodied consecutive bullish candlesticks with short or no wicks.

Each candlestick opens at a level slightly lower than the close of the previous candlestick and closes at a level higher than the high of the previous candlestick. If the body of the first bullish candlestick of the pattern is above the low of the preceding bearish candlestick, then that makes the resulting Three White Soldiers Pattern even a stronger bullish signal.

Once you have spotted this formation, then such is your Three White Soldiers pattern. That brings us to the next step.

2. Confirming the Signal with the Moving Average Convergence and Divergence (MACD).

Have you spotted your Three White Soldiers? Then that solely, may not be enough. You need to go a step further and verify that the formation will truly yield to your expectation of the price to rise.

This verification will be done by the use of the MACD indicator. We already explained how the indicator works. On this step try to ensure that your anticipation for the price to continue rising is in sync with the MACD.

Let one or several of the following MACD conditions be met in order to be sure of a continued rise in the price as predicted by the three white soldiers;

• Fast MACD moving average crossing over the Slow MACD moving average from below upwards.
• The MACD histogram shows an increase in readings hinting at increasing price momentum.
• Both the Fast and Slow MACD moving averages cross over the zero line from below upwards.
• Both the MACD moving averages reached the oversold level and reversing upwards.

3. Entering a Buy Position.

Have any or several of the above MACD conditions been met? Then you can proceed to enter your Buy position. If none has been met, you would rather not go long. It might be a simple pull back as the primary downtrend resumes shortly afterward.

4. Adjusting your Stop Loss.

Place your Stop Loss just below the low of the first candlestick of the Three White Soldiers Pattern.

If you are trading without Stop Loss orders then you would rather stop and begin using Stop Loss orders.

A Stop-loss order can save you a big deal on a bad day when almost every trade goes south.

5. Adjusting your Take Profit.

What you do is to identify a major Resistance level where most price movements tend not to break.

This might sound so relative but identify the closest major Resistance area in order to estimate the minimum amount of Profit you can take.

The price is not limited to that one level you choose and can always move past that translating into more profits of course.

Wrapping Up on the 3 White Soldiers Pattern.

In the beginning, we mentioned that the Three White Soldiers Pattern is a bullish reversal pattern. As we progressed, it came to the surface that using the candlestick pattern alone may not be enough.

Actually, candlestick patterns on their own may not be enough to make trading decisions, just like a single indicator isn’t.

Therefore, combining such a candlestick pattern with the MACD indicator can be such a powerful trading tool. That just became clear as demonstrated in this article.

If you have been using the Three White Soldiers Candlestick Pattern solely, then you can consider including a momentum indicator like the MACD or RSI.

If you have never used the Three White Soldiers Pattern to trade, then apply it in conjunction with the MACD on Olymp Trade today and see how it works.

Remember to always test new Patterns and Strategies on your Olymp Trade Demo Account first, before using them on your live account. This will not risk your real capital and will help you make any necessary adjustments.