Three White Soldiers
The three white soldiers candlestick pattern is the bullish counterpart of the three black crowscandlestick pattern and it is indicative of a reversal of the current downtrend. This pattern is consists of three large white (or green) candles each with a higher close than the previous candle indicating the start of an uptrend. It is considered one of the most reliable trading patterns if it forms after an extended downtrend or after consolidation of a downtrend.
The criteria that must be met in order to consider a candlestick pattern that of the three white soldiers is the following: First, this pattern should be formed after a significant downtrend, as mentioned above. Second, there should be three long white consecutive candlesticks each closing at a new high. Third, the opening price of each candlestick must be within the body of the previous day’s candlestick. Lastly, the second and third candlesticks must have closing prices near or at their highs. If the first solider occurs at a previous support level or at an area of congestion, then this indicates that there may be further strength and gains ahead.
What does this signal indicate is occurring in the markets?
This pattern occurs after the market has stayed at a low price for too long and may be approaching a bottom. It may already be at the end of a prolonged downtrend after the market has continued to fall. This pattern marks a change in investor sentiment as traders use this pattern to confirm a shift in momentum. A decisive attempt upward occurs, as indicated by the long white candlestick, and it continues over the following two days. These higher closes over the next couple of days force the bears to cover their short positions. This pattern can also potentially form after a consolidation. While this is a sign of a move higher, it is not the ideal situation of it occurring at the end of a prolonged downtrend.
The reliability of the three white soldiers pattern increases as certain things occur. For starters, a shortening of the upper shadow of the second and third candlesticks increases reliability. An increase in the length of the candlesticks as well as an increase in the trading volume increase reliability. The reliability of this pattern also increases when the opening price of the candlesticks are at or near the mid-point of the previous candlestick.