Back to blog

How to Use Three White Soldiers Pattern in Crypto Trading?

Feb 9, 2023

What Are the Three White Soldiers?

The name of this pattern might seem funny. However, this name isn’t random. Like many other trading patterns’ names, the three white soldier pattern’s name is based on how it looks on the graph. The three green (traditionally white in the stock market) ascending candles resemble three soldiers on guard.

The three white soldiers are a candlestick pattern signaling a soon trend reversal. Three white soldiers is a bullish signal taking place close to the end of the downtrend. The pattern occurs as a result of increasing demand and points to the soon switch to a bull market.

How to Identify the Three White Soldiers

Identifying Three white soldiers is not hard, but you should ensure the pattern you see satisfies the following characteristics. The pattern is made of three green candles. Each one is placed higher than the previous one

The size of each candle is about the same as the size of the other candles in the formation. The green candles should be vast. Sometimes their sizes are more significant than the sizes of the preceding candles. The wicks of these candles are small.

Each candle’s bottom can’t be lower than the mid-price of the previous candle in the pattern. Another characteristic of the three white soldiers is that the opening price can’t be higher than the maximum price of the previous candle while the closing price is always higher than the previous candle’s maximum.

It’s important that the three white soldiers are accompanied by significantly increasing volume. Huge volume usually indicates the institutional traders that facilitate the trend reversal. Also, note that the smaller the wicks or shadows are, the higher the probability that a strong uptrend will change the downtrend.

All the candlestick patterns used in crypto trading were developed long before the invention of cryptocurrencies. In cryptocurrency trading, the growing price is shown on the graph as the green candle. In traditional markets, the green candles were white. That’s why the pattern is called “white soldiers” despite the candles being green. The formation occurs in the downtrend, usually meaning it will end soon. The very look of this pattern injects traders with optimism.

There are several instances when you might think that you see the three white soldiers when actually you don’t. For example, if you see three green candles resembling the white soldiers pattern amidst the market consolidation, it’s likely that they don’t indicate a soon trend reversal. The flip only occurs when the three white soldiers appear in the bear market.

How to Use the Three White Soldiers

We can consider the three white soldiers a reliable entry and exit point. As mentioned above, the three white soldiers are a bullish trend reversal signal. Nevertheless, we should add that this pattern can have different meanings. Depending on the overall market situation, the three white soldiers can be read as a continuation pattern.

The bullish three soldiers occur in the downtrend. However, if you spot the Three white soldiers pattern amongst the bullish trend, you shouldn’t think of it as a reversal signal. In the uptrend, the three white soldiers are a continuation pattern. We can conclude that regardless of the market situation, the three white soldiers are always followed by the uptrend. This pattern signals growing prices no matter when it emerges. Another thing you always learn from spotting the three white soldiers is that buying pressure prevails over the selling one.

Not necessarily the bullish market will end up being long-lasting. Use this opportunity wisely and quickly. There is no somewhat unified way to react to the three white soldiers. However, we can point to two popular strategies applicable to the three white soldiers pattern.

First, you can wait until the price exceeds the maximum it had in the third candle and open a buy order. Now, you can be more or less sure that the price will continue its growth. You will buy it at a relatively low price with a significant chance of selling the asset for a higher price later.

In many cases, the emergence of the three white soldiers signals the asset will soon become overbought. Before you make conclusions, it’s better to check the other indicators. If they show that the asset is overbought, you can sell it now and buy again after the price drop.

Risk Management with Three White Soldiers

Due to high volatility and weak regulation, crypto trading is a pretty adventurous enterprise. Risk management is a must when you trade cryptocurrency. Don’tDon’t invest more than you can afford to lose. The use of the three white soldiers pattern can also be associated with unexpected losses. See how you can avoid them.

Don’tDon’t rely solely on this indicator. Even despite the fact that the three white soldiers usually signal the end of the downtrend or the continuation of the bull market, you should always confirm this prediction using other indicators. You can use a stochastic oscillator, moving averages, or other analysis tools to ensure that the market will not go down right after the appearance of the white soldiers. Everything is possible on the market. So even strong signals can end up being misleading. You should always double-check everything you see on the graph.

The cases when the three white soldiers pattern emerges in the consolidation period can become real traps for traders vainly hoping for a downtrend to end soon. You should keep track of the trading volume. Low volume is not an ally for trend reversal.

Three White Soldiers vs. Three Black Crows: Differences

Three black crows are kind of a reversed version of the three white soldiers pattern. Instead of three ascending green candles, it’s made up of three descending red ones. More than that, as opposed to the three white soldiers, three black crows emerge at the end of the uptrend. It means that the three black crows are the bearish trend reversal signal. All other characteristics are similar to the ones of the three white soldiers but opposite.

Some traders short what they have after seeing the three black crows as the following trajectory of the price is downward. Others prefer to buy the asset if the stochastic oscillator or other indicators confirm that the asset is oversold. It makes them think that the price will rebound soon and the three black crows are just a buying opportunity.

Conclusion

In general, it’s safe to say that the three white soldiers are a relatively straightforward and definite pattern. Once you learn to spot it correctly and build a solid strategy based on this pattern, it can become your good helper in earning on trading. In combination with RSI and stochastic indicators, this pattern can give you quite reliable results.

Again, we must remind you that no indicator or market signal should be used isolated from several others. The more tools you use to predict the future price trajectory, the higher the chance of making the best decisions. Or at least it helps you to avoid losses.

Rate: