Two of the most recognizable triple candlestick patterns are probably Three White Soldiers and Three Black Crows. How to trade them in a simple way?

When feeling the need to use another trading strategy, to see whether it plays its part on the chart, it is wise to understand its real power, characteristics, and rules of wisdom in how to use it properly.

Three White Soldiers and Three Black Crows strategy

More importantly, just like currencies, patterns always have flip twins that go in the opposite direction. We're talking about two of the most popular chart patterns trading experts use today, which can be used in all levels of trading skills: The Three White Soldiers and The Three Black Crows patterns.

 

Three White Soldiers

Representing all things that are white and bringing analogically peaceful mind and excitement, the Three White Soldiers pattern falls on the bullish side of the reversal candlestick patterns. And by staying true to its namesake, Three White Soldiers consists of 3 bullish candlesticks that go in the positive direction. Here's how it's formed:

  1. The market is in a downtrend movement.
  2. Then appear 3 consecutive green bullish candlesticks representing the white soldiers.
  3. Each candlestick opens WITHIN the body of the previous candle, including the red one at the start of its formation.
  4. Then, each of the later candlesticks closes HIGHER than the previous candlesticks' positions.

For example, look at this chart below:

Three White Soldiers

Notice that the Three White Soldiers pattern signals an imminent directional change in the trend. That's why they are categorized as a bullish pattern because when you look at them, the long candle bodies always indicate that new buyers are entering the market. And that at the same time, traders who placed short positions are taking profits.

 

Three Black Crows

Here's the opposite of White Soldiers: the Three Black Crows pattern. Since its name is categorically called "black" which usually represents darkness, this one goes directly into the bearish patterns bin. The Three Black Crows is a bearish reversal candlestick pattern that consists of three easily noticeable characters. Here are the conditions required for its formation:

  1. The market is in an uptrend movement.
  2. Then appear three consecutive bearish candlesticks representing the three black crows.
  3. Each candlestick opens WITHIN the body of the previous candle, including the green one at the start of its formation.
  4. Then, each of the later candlesticks closes LOWER than the previous candlesticks' positions.

Take this chart below as an example:

Three Black Crows

 

How to Utilize the Two Patterns

It is smart to do some technical analysis before deciding to go into action with any of these patterns. Some dimensions may be accounted for, as also some historical chart readings. The benefit of using these two patterns in your strategy is that there are no indicators needed.

These are pure price action signals that allow price movements and tell traders what kind of next move they should make. But first, take a look at some conditions where these patterns work best.

  • Time Frame – Just like any other chart pattern in common trading strategies, they tend to work best in a higher time frame, although you could use them intraday, a higher time frame gives a better perspective on how the market behaves historically and how the patterns will form if such a condition reoccurs.
  • Currency Pairs – Any trending currency pair will fit just fine.
  • Indicators – This is a pure price action strategy, so no indicators are required.

 

Trading Rules

To excel in using Three White Soldiers and the Three Black Crows, you should learn the following rules:

  1. Once a Three White Soldiers pattern is formed, place a Buy Stop order around 3 to 5 pips above the high point of the 3rd candlestick. On the contrary, when a Three Black Crows pattern is formed, place a Sell Stop order below the lowest point of the 3rd candle.
  2. If you placed a Sell Stop order, take a Stop Loss position above the 3rd candlestick's high point. Oppositely, if you placed a Buy Stop order, take a Stop Loss position below the 3rd candlestick's low point.
  3. Profit-taking may target the previous swing highs or lows (peak or bottoms).
  4. Take a Stop Loss action to break even when the price moves at the same value as the amount risked.
  5. Learn to take partial profits off the table when the price moves at least the halfway point to your target profit level.
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Important Tips

Not all Three White Soldiers or Three Black Crows on the chart are equally accurate in predicting trend reversals. Some may return as fake and can ruin your analysis. Therefore, back up your readings with at least a basic analysis of how the market behaves and how to respond to ongoing patterns. Put in some context, or look at the common zones that are reliable for initial assessment:

Those three levels are very important to consider, especially in a higher time frame. Any place or level apart from these three should be treated more carefully, especially for beginners. Make a good analysis to determine how and when the pattern will change and in what direction, note the inflection points, and make sure that the patterns that are forming or have formed are valid.

You also want to be careful about potential price consolidation. Once the price breaks out of any consolidation, there is a strong chance that the price will reverse or retest. So note down the important movement points. If you already place a position, look at how the price progress from the patterns and analyze it properly, because there's still a chance of getting stopped out by volatility or the broader nature of market movements.

 

Prons and Cons of This Strategy

If this strategy turns out as you planned, and if the market condition is fairly predictable, you can make some profitable pips quite easily. Here are some important things to recognize, though:

  • Every strategy has its weakness and one of those weaknesses is the fact that sometimes the distance between these two patterns is so huge that a Stop Loss action is not feasible enough to take. Ignore this, and you may end up in a very small size position.
  • It may be just a temporary reversal pattern, and the next thing you know is that you get stopped out by the market movements.
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So, stay focused and work smart on your analysis. Remember to always take only calculated risks and if possible, do extensive research before taking any important action. I hope you enjoyed learning about the Three White Soldiers and the Three Black Crows trading pattern and see you in the next trading tips.

 

Other than candlestick patterns, anticipating reversals can be observed through certain technical tools on the chart. Explore the answers in Best Tools to Spot Trend Reversals.