Three White Soldiers –

The Three White Soldiers pattern is a popular bullish candlestick pattern. It is fairly easy for most traders to spot in real time given the 3 large range successive candles. Moreover, in the right context it can signal a reversal of a trend. In this post we’ll discuss the context, requirements, and a free video on how to trade this pattern.

If you aren’t familiar with candlesticks in general, be sure to check out our Candlestick Pattern Guide. In that post we’ve put together a free infographic cheat sheet for you to use with your trading, along with many bullish and bearish examples!

Three White Soldiers Video Tutorial

Our in house trading expert, Al Hill has put together a quick video explaining the pattern. Have a look before you get started with the tutorial.

Overview

The three white soldiers is a Japanese candlestick pattern that is comprised of three or more bullish candles. ^[1]

The candles are white because positive price movement in eastern technical analysis is represented white and not green (as most charting platforms default to these days).

The reference to soldiers is in the context of the battle between the bulls and bears. Visually, they are marching forward with no impediment.

3 Requirements for Confirmation

Now that you have the image of the three white soldiers candlestick pattern in your mind, hopefully you’ll begin to see the pattern on your charts more often. Sometimes studying candlestick patterns can be a lot like listening to a new song, it gets stuck in your mind.

But not every sighting of a pattern is tradeable.

With most candlestick patterns, one trader may see a bullish setup, while another may see bearish signs. For this reason, it is imperative to qualify the context of the candlestick patterns before making a trade.

Next, we will dive into three clear requirements you should look for when the candles present themselves on the chart.

1st Requirement – Three Bullish Broad-Range Candles

The first rule for the pattern is that you need clean candles with decent size. By clean, we mean without a lot of selling pressure. Ideally, you don’t want long upper or lower wicks.

These candles all need to finish in the positive and the candles cannot breach the low of the prior candlestick. For reference, please see the above image.

Next, the candles need to be healthy in size, where the open is essentially the low of the period and the candlestick closes near its high. The price advancement for each candle should be considerable compared to other candles on the chart

We aren’t looking at a doji or narrow body candle here.

In the right context, this suggests ease of upward movement. A bullish sign.

2nd Requirement – Formation at the End of a Bearish Move

This requirement is a bit more subjective and tougher to identify. You essentially need to identify weakness in a stock and then the three white soldiers show up to the rescue.

Contextually, it can come when there is a lack of supply in the market after a heavy sell off, signaling a big reversal. Short covering can fuel the Three White Soldiers off the lows.

This can occur after a clear bear trend down or after a stock retreats to the bottom of a trading range.

3rd Requirement – Heavy Volume Signature

This one is not discussed as often, but you need to see volume in the setup to validate its strength. ^[2] If you encounter three white soldiers that are on light volume this could mean there was a handful of weak retail traders that jumped in too soon.

Without volume this pattern has a higher probability of rolling over, thus stopping you out of your position.

Three White Soldiers Chart – Example 1

In the first chart example, we’re reviewing the symbol SBAC. One of the first interesting points is that the stock has a sharp move upward at the open and then immediately rolls over.

Out of this weakness, SBAC then prints Three White Soldiers. This was an indication that the weakness had subsided and the stock would then attempt to develop some sort of base.

The one issue with this particular setup is the volume. As we stated earlier, the volume must accompany the setup in order for the signal to carry real weight.

The light volume in the Three White Soldiers pattern for SBAC did not ruin the trade as the stock was able to make a run for the daily highs.

However, the stock topped out at that point and developed a range.

So, in this example, while SBAC did not roll over, the stock also did not make the sizeable move we would have hoped for with this setup.

Three White Soldiers Chart – Example 2

In this example, do you see how MTN sold off the entire day? The stock had a high volume down event followed by three white soldiers. Yet again, the volume did not follow through with the soldiers.

So, what happened next?

The stock had a minor pop back up to the downtrend line only to drag lower into the close.

Are you starting to see a trend with weak volume?

That’s right, sometimes the soldiers may print on the chart, but these are not always your front line heroes.

Three White Soldiers Chart – Example 3

Now that the failed examples are out of the way (it is always good to have a healthy does of skepticism with any pattern), let’s turn our attention to a Three White Soldiers formation that works out nicely.

After a steep selloff into a support zone, DK prints three white soldiers with decent volume and the stock shot back up to the most recent swing high.

Three White Soldiers Chart – Example 4

We’ll save the best for last. In this example, EYES is trending upward from a consolidation in the morning. Now that it is above its prior resistance, we get a little pullback in the price action — just enough to suck shorts into the trade.

Once shorts are getting nice and cozy, bulls come with a vengeance to reclaim their trend.

Like the other examples, note the massive volume signature on these Three White Soldiers marching to new highs.

This particular stock ran another 400% from this point. So you can see that context is everything.

Why The Three White Soldiers Candlestick Pattern Is Difficult To Trade

Everything you have read on the internet probably praises this formation and the power of its trend forecasting capabilities. And it can be a great pattern for that reason, no doubt.

However, depending on your trading style, you may find this pattern difficult to trade for a few reasons shared below.

1. Difficulty Buying Selloffs

Many traders do not like to buy selloffs or stocks floating lower. You may have heard of the old adage, “don’t try to catch a falling knife?” Well, this is no different.

Trying to time the bottom can be difficult and risky, you never know when the stock could flush lower, stopping you out. Or even worse, stopping you out with a horrible fill.

2. Risk Is Too Wide

The difficulty with buying the Three White Soldiers is that they are very wide bodied candles. As you notice from the examples above, waiting for the last soldier to form may create an emotional hurdle if you plan to set your risk at the low of the day.

If you were to buy three white soldiers at the confirmation of the last candle, that’s three really large candles to set a stop against. It’s simply too much risk in the trade relative to the profit potential on the upside.

As a consolation, if the pattern is extremely bullish with accompanying volume, you might decide to put your stop at the low of the last soldier candle. This could be a work around for the risk issue.

Otherwise, you might wait for a pull back to retest the demand in these three candles and take your long position there.

3. Buying The Pullback May Not Work

Those of you familiar with the setup will say, “well, duh, don’t buy the break of the third candle.” As mentioned above, you could just wait for a slight pullback on light volume after the three white soldiers develops.

Perhaps buy a 50% retracement from the high of the pattern, if you get that.

This doesn’t always work. As you can see with the EYES example above, we never got that retest.

However, the silver lining in the EYES example is that we did retest the high of the third soldier candle two times, and both times held the new trend well.

EYES holds support at the Three White Soldiers

Again, the key is context and the ability to set risk according to the potential profit you might make in the trade.

An Alternative Buy Point

Experienced traders prefer their patterns to start and move with a sense of urgency. For this reason, you could initiate a position into the runup of the three white soldiers, adding as volume confirms.

This is more of an anticipatory strategy if you sense heavy demand in the tape or Level II. After the completion of the formation you can make a decision to add or cut the trade depending on the context.

How To Practice the Three White Soldiers

If you are contemplating trading the three white soldiers pattern you can practice identifying the setup within a simulator by replaying tick data for over 11,000 symbols for the last 3 years.

You can then work on developing your own specific rules for entries, stops, and targets.

As always, be sure to ask yourself the following questions when practicing any setup:

what qualities work for each particular setup
what criteria were met, or not met
how was volume associated with the pattern
where could you have set your risk and profit target
how many of your trades worked or didn’t work

For more information on candlestick patterns, please check out our free technical analysis section devoted to these great trading tools.

External References

Trading without candlestick patterns is a lot like flying in the night with no visibility. Sure, it is doable, but it requires special training and expertise. To that end, we’ll be covering the fundamentals of candlestick charting in this tutorial. More importantly, we will discuss their significance and reveal 5 real examples of reliable candlestick patterns. Along the way, we’ll offer tips for how to practice this time-honored method of price analysis.

Also, feel free to download our Candlestick Pattern Quick Reference Guide!

Why Do Candlestick Patterns Matter?

After all, there are traders who trade simply with squiggly lines on a chart. Astonishingly, some don’t even look at the charts! Instead, they pay attention to the “tape” — the bids and offers flashing across their Level II trading montage like numbers in The Matrix.

Level II montage gif — A Level II montage. Source: CenterPoint Securities

No doubt, there are countless ways to make money in the stock market. In fact, there is no right or wrong way to read a chart. But unless you are just a gambler, you need some form of data to make informed decisions.

We believe the best way to do this is by understanding candlestick patterns.

For newer traders, even reading candlestick charts can seem like an insurmountable learning curve. There appears no rhyme or reason, and no end to the amount of price and volume data being thrown your way.

It’s daunting, for sure. Especially when you’re just getting started.

But be of good cheer! There is a method to the madness. The method is in the patterns. The patterns reveal probabilities. And the right probabilities create opportunities.

More importantly, the right opportunities can create profits.

This is where candlestick patterns come in handy. They help us to decipher the patterns of the market. They’re like little road signs on crowded streets. And with enough repetition, enough practice, you just might find yourself a decent chart reader.

That’s why you’re here, right? To learn to navigate the murky waters of the market?

Trust us, it is a worthwhile endeavor.

Who Discovered the Idea of Candlestick Patterns?

Munehisa Honma, 1724-1803 The father of candlestick patterns — *Munehisa Honma, 1724-1803*[efn_note]https://ninjatrader.com/blog/candlestick-charting-legend-of-munehisa-homma/[/efn_note]

According to Investopedia.com, it is commonly believed that candlestick charts were invented by a Japanese rice futures trader from the 18th century. His name was Munehisa Honma.[efn_note]Farley, A. (2021, April 29). The 5 Most Powerful Candlestick Patterns. Investopedia.Com. https://www.investopedia.com/articles/active-trading/092315/5-most-powerful-candlestick-patterns.asp.[/efn_note]

Honma traded on the Dojima Rice Exchange of Osaka, considered to be the first formal futures exchange in history.[efn_note]NinjaTrader. (2019, April 17). Candlestick Charting: Legend of Munehisa Homma. NinjaTrader.Com. https://ninjatrader.com/blog/candlestick-charting-legend-of-munehisa-homma/.[/efn_note]

As the father of candlestick charting, Honma recognized the impact of human emotion on markets. Thus, he devised a system of charting that gave him an edge in understanding the ebb and flow of these emotions and their effect on rice future prices.

Honma actually wrote a trading psychology book around 1755 claiming that emotions impacted rice prices considerably.[efn_note]Beyond Candlesticks: New Japanese Charting Techniques Revealed, Steve Nison , Wiley Finance, 1994, ISBN 0-471-00720-X.[/efn_note]

When all are bearish, there is cause for prices to rise.
Munehisa Honma[efn_note]Beyond Candlesticks: New Japanese Charting Techniques Revealed, Steve Nison , Wiley Finance, 1994, ISBN 0-471-00720-X, p14.[/efn_note]

In recent history, Steve Nison is widely considered the foremost expert on Japanese candlestick methods. After all, he wrote the book that catapulted candlestick charting to the forefront of modern market trading systems.

Beyond Candlesticks: New Japanese Charting Techniques Revealed, is one of his most popular books and a definitive resource for candle patterns.

Since the 90s, this method of charting has become pervasive throughout all financial markets: equities, futures, forex, and more.

In his books, Nison describes the depth of information found in a single candle, not to mention a string of candles that form patterns. It truly puts the edge in favor of a skilled chartist.

The Story That Candlesticks Tell

Candlesticks are telling us a story. The story is a reflection of what buyers and sellers are doing.

Emotions and psychology were paramount to trading in the 1700s, just as they are today. This is the foundation of why candlesticks are significant to chart readers.

How so?

Every candle reveals a battle of emotions between buyers and sellers.

As the great trading psychologist Brett Steenbarger notes, “proper training is the best source of discipline and the most effective safeguard against intrusive anxiety and impulsivity.”

With this in mind, understanding the emotional story within candlesticks is a great place to start that training.

How are Candlesticks Formed?

There are three types of candlestick interpretations: bullish, bearish, and indecisive. This is painting a broad stroke, because the context of the candle formation is what really matters. But for all intents and purposes, we’ll stick with these three categories.

The elements of a candlestick graph — The elements of a candlestick

What Is a Candlestick?

The formation of the candle is essentially a plot of price over a period of time. For this reason, a one minute candle is a plot of the price fluctuation during a single minute of the trading day. The actual candle is just a visual record of that price action and all of the trading executions that occurred in one minute.

Similarly, a daily or weekly candle is the culmination of all the trading executions achieved during that day or that week.

The open tells us where the stock price opens at the beginning of the minute. The close reveals the last recorded price of that minute. The wicks (also known as shadows or tails) represent the highest and lowest recorded price from the open and close.

According to Nison, the Japanese placed much less emphasis on the highs and lows of individual candles. For them, as it is for modern technicians, the opening and closing prices were more relevant.[efn_note]Beyond Candlesticks: New Japanese Charting Techniques Revealed, Steve Nison , Wiley Finance, 1994.[/efn_note]

Essentially, the broader context of candles will paint the whole picture.

What Is a Bullish Candle?

A bullish candle is formed when the price at the closing of the candle is higher than the open. This can be on any time frame: from a 1-minute candle to a 1-month candle. It will all be the same.

A bullish candle explanation — A bullish candle opens low and closes high.

Typically these candles close with a green or white body color, though most charting platforms allow for customization these days.

What Is a Bearish Candle?

Conversely, a bearish candle is assumed when the closing price is lower than the opening price. In other words, the price dropped in the amount of time it took for the candle to form.

A bearish candle explanation — A bearish candle opens high and closes low.

By default, most platforms will show a red or black candle as bearish.

What Does the Candle Formation Tell Us?

This is the real question we need to ask ourselves. It isn’t enough to know that the candle opened and then closed lower, or vice-versa.

As renowned trader and best-selling author Dr. Alexander Elder explains, “The main advantage of a candlestick chart is its focus on the struggle between amateurs who control openings and professionals who control closings.”[efn_note]Elder, A. (2014). The New Trading for a Living: Psychology, Discipline, Trading Tools and Systems, Risk Control, Trade Management (Wiley Trading) (1st ed.). Wiley.[/efn_note]

Dr. Elder may be referring to daily candles, but his point is still important. The candle represents a struggle between buyers and sellers, bulls and bears, weak hands and strong hands.

Every trader wants to understand the price action and read it well to improve their trading. Studying candlestick patterns helps us understand the price action and where the stock is more likely to go the next minute or the next few minutes.

Armed with that knowledge, let’s dig in and see what picture those little candles are trying to paint for us.

The High of the Candle

The high of each candle, whether it is the tip of the wick at the top, or if the body closes at the top, represents the maximum effort of bulls. If it is a daily candle, buyers could not push the price of the stock one cent more during that day.

Why is that important? There are two reasons:

This could represent a near term level of resistance which will have to be broken for the price to move higher.
In order to find enough demand to push through that resistance, the stock may need to consolidate lower until enough shares are accumulated.

The Low of the Candle

Just as the high represents the power of the bulls, the low represents the power of the bears. The lowest price in the candle is the limit of how strong the bears were during that session.

Why is this important? Again, two reasons:

This could represent a near term level of support where bulls were able to stop the downward momentum
To move lower, more supply may need to enter the market at higher prices.

The Closing Price of Each Bar

This is where the story gets interesting.

When a candle closes above its opening price, we can assume that the bears won in some form or fashion. How much it closes above the open tells us with what intensity the bulls were in control during that session.

Let’s look at few examples to better understand this:

In this chart, we see the “Three White Soldiers,” which is a candlestick pattern describing three bullish candlesticks in a row. What can we interpret from this?

Three White Soldiers candlestick pattern

It is clear to see that the candles open low and close high. Bulls were clearly in control during each session with very little energy from the bears.

Now contrast that with what we see in the next example. Ask yourself, who was in control during this session?

Apparently there is indecision as to who is in control. How do we know? Think about the story behind this “Spinning Top” candle:

The stock opens, proceeds lower as bears are in control from the open, then rips higher during the session. But after putting in a decent high, the bulls settle back and give the bears some control into the close.

Are you beginning to see how the story unfolds?

These are the stories that candles tell us on charts. Who is in control (greed), who is weak (fear), to what extent they are in control, and what areas of support and resistance are forming.

The Range between the Open and Closing Price

This is one of the most important aspects of interpreting candles. As Dr. Elder notes, the range between open and close “reflects the intensity of conflict between bulls and bears.” [efn_note]Elder, A. (2014). The New Trading for a Living: Psychology, Discipline, Trading Tools and Systems, Risk Control, Trade Management (Wiley Trading) (1st ed.). Wiley. p 53.[/efn_note]

In day trading, momentum is everything. On this token, the character of the candles can tell us if there is demand or if a stock is sleepy and uninteresting — whether we are about to launch, fall off a cliff, or just grind sideways.

Additionally, the nature of the candles can tell us when to enter with tight risk. Or, when to take profits into climactic candles.

In the end, it all boils down to context and the story of buyers and sellers behind the tape.

5 Real Examples of Reliable Candle Patterns

Without practice, none of this information really matters. It takes screen time and review to interpret chart candles properly. There are no free lunches in the markets.

With that being said, let’s look at some examples of how candlestick patterns can help us anticipate reversals, continuations, and indecision in the market.

1. The Hammer / Hanging Man

The hanging man occurs at tops and the hammer occurs at bottoms.

The Hanging Man is a candlestick that is most effective after an extended rally in stock prices. The story behind this candle tells us that there were extensive sellers in the formation of the candle, signified by the long wick.

It is usually accompanied by heavy volume.

The Hanging Man pattern — The Hanging Man appears at the top of an extended uptrend before reversing.

The Hammer is another reversal pattern that is identical to the The Hanging Man. The only difference is the context. The Hammer occurs at the end of a selloff, signifying demand or short covering, driving the price of the stock higher after a significant selloff.

Like the Hanging Man, you want to see a solid volume signature associated with these candles.

The Hammer pattern — Hammer candles appear at the bottom of a downtrend before a reversal

2. Engulfing Patterns

Engulfing patterns offer a great opportunity to go long while keeping risk defined to a minimum. As you can see in the example below, the prior bearish candle is completely “engulfed” by the demand on the next candle.

A bullish engulfing candlestick pattern — A bullish engulfing candle at the market open.

Another example of engulfing patterns is the Bearish Engulfing Sandwich. Here we have what appears to be a bearish reversal, but the next candle completely swallows the supply from that red candle:

A bearish engulfing sandwich, also know as a stick sandwich — A bearish engulfing sandwich pattern, also know as a stick sandwich

3. The Morning Star

The Morning Star is yet another reversal signal. It can be found at the end of an extended downtrend or during the open. It takes 3 candles to confirm the setup.

The first candle must be a strong downtrending candle.
The second candle is the star. It’s usually a narrow body candle that, ideally, does not touch the body of the prior candle.
The third candle is a strong bullish candle confirming the new uptrend.

The morning star candlestick pattern explained at the open — The morning star candlestick pattern at the open

4. The Evening Star

Similar to the Morning Star, the Evening Star is its bearish cousin. It forms at the top of parabolic or extended bullish runs. Much like the Morning Star, the body of the candles should not touch.

Here are three criteria for spotting the shooting star:

The bodies do not overlap
The third candle is a strong bearish candle closing into the body of the first candle
Volume should increase from left to right in the pattern

The Evening Star explained on GME — The Evening Star candlestick pattern on GME

As with all of these formations, the goal is to provide an entry point to go long or short with a definable risk. In the example above, the proper entry would be below the body of the shooting star, with a stop at the high.

5. Indecision Candles

The doji and spinning top candles are typically found in a sideways consolidation patterns where price and trend are still trying to be discovered.

Indecision candle patterns — Indecision candlestick patterns

The “doji’s pattern conveys a struggle between buyers and sellers that results in no net gain for either side,” as noted in this great article by IG.com.

Will it continue upward? Go sideways? Or reverse?

With indecision candles, we typically need much more context to answer these questions.

The Gravestone Doji is a perfect example of this:

The Gravestone Doji indecision candlestick explanation — Gravestone Doji candles can represent indecision on a chart.

Note the trend is mostly sideways in this first circled example. For this reason, waiting for the reaction to these candles is usually best for risk management.

Eventually, the price falls in this particular case as the trend becomes more extended into the rally. Correspondingly, the Shooting Star that occurs just beyond the Gravestone Doji is confirmation of that falling price action.

The Best Way to Practice with Candlestick Patterns

As always, it is best to practice a strategy before putting money to work in the market. There is no better way to do this than with a simulator.

One of the best methods to train your “chart eye” to see these patterns is to simply replay the market, noting each time you see a particular candle.

As you put in deliberate practice, ask yourself the following questions:

What candle formation is this?
What is the context? Uptrend? Down trend? Sideways?
Does this candle meet the criteria for a proper reversal?
Where could I enter with the least amount of risk?
What would confirm the pattern?

We have a wealth of knowledge on many different candlestick patterns, so be sure to check out those lessons, too!

Three White Soldiers: 3 Things You Must Consider Before Trading [Video]

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