Introduction
Most reversal patterns show a battle. The Three White Soldiers pattern shows a massacre.
This pattern consists of three consecutive long green candles that march steadily higher, signaling that the bears have completely given up and a new trend is fully established.
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How to Identify It
- Three Green Candles: Appearing consecutively after a downtrend.
- Progressive Opens: Each candle opens within the body of the previous candle.
- Strong Closes: Each candle closes near its high (small or no upper wicks).
- Size: The candles should be roughly the same size, indicating steady buying.
The Psychology
This is not a panic buy; it is an accumulation. Institutional investors are stepping in and buying steadily over several sessions. There is no resistance—sellers are simply stepping out of the way.
How to Trade It
- The Catch: By the time the third soldier appears, the price has already moved significantly.
- The Strategy: Do not chase the price immediately after the third candle. Wait for a slight pullback (retracement) to test the support of the second soldier.
- Stop Loss: Below the low of the second candle.