What is the Three Advancing White Soldiers Pattern?
The Three Advancing White Soldiers candlestick pattern, which is sometimes referred to simply as the Three White Soldiers, is a moderate bullish trend reversal pattern that is quite similar to the Advance Block and the Stalled pattern. All three patterns are triple candlestick patterns that are moderate reversal patterns. These patterns hint at a weakening of the existing trend. While the Advance Block and Stalled patterns appear in an existing uptrend, the Three Advancing White Soldiers pattern must appear in an established downtrend where it usually indicates a weakening of the downtrend, and the potential transition to an uptrend.
The Three Advancing White Soldiers pattern is also the opposite of the bearish Three Black Crows candlestick pattern.
The Three Advancing White Soldiers Formation
This pattern is called the Three Advancing White Soldiers pattern because it consists of three relatively long bullish (hence advancing) candlesticks that are light in color. Each of the three candlesticks should close on or near the high price for the period and each candlestick must mark a steady advance in price movement. Each candlestick should not have long upper shadows or wicks and should preferably open within the real body of the preceding candlestick in the pattern, though the latter is not essential.
What the Three Advancing White Soldiers Pattern tells us
The three candlesticks in the Three Advancing White Soldiers pattern, with their successive higher highs and higher lows made in a downtrend suggests that the bulls are increasing in strength. It indicates the potential emergence of strength of bulls and a possible bullish trend reversal. However, if the three candlesticks are over extended and make significant advances it may lead to overbought conditions.
Trading the Three Advancing White Soldiers
As the Three Advancing White Soldiers pattern is a bullish reversal pattern, it warns of increasing weakness in an existing downtrend and a possible transition to an uptrend. Trader would, thus, be looking to close any open short positions and go long in the market once the formation of the Three Advancing White Soldiers pattern has completed. Traders that are currently holding short positions would then be looking to cover their short positions on the open of the next candlestick. Traders would also be looking to place buy orders at the same price level. A protective stop loss could be placed at the low of the pattern as a price break below this level would negate the pattern. If the protective stop-loss is too far from the entry to provide a favorable risk/reward ratio, the trader could wait for a possible retracement back towards the low of Three Advancing White Soldiers pattern. This would place the entry much closer to the protective stop and would reduce the capital at risk on the trade, though there is no guarantee that a retracement will take place.
The Three Advancing White Soldiers pattern, like most candlestick patterns, does not provide a profit target for the trade. Instead, a trader could implement a profit target based on a defined risk/reward ratio, a measured move, or use a trailing stop to exit the long position. Alternatively, some other trading mechanism could be used to exit the trade. This could be a Fibonacci retracement level or the appearance of a bearish candlestick formation.
As with most trend reversal patterns, the Three Advancing White Soldiers pattern becomes more reliable when it appears in the vicinity of a lower trend line, a pivot point, or support line, etc. Furthermore, traders can use the Three Advancing White Soldiers pattern in conjunction with an oscillating indicator, such as the RSI, that shows the security to be oversold.