The three white soldier chart pattern forex trading strategy is based on a specific chart pattern called the three white soldiers chart pattern.
In here you will learn what a 3 white soldiers pattern is and some techniques on how to trade the three white soldiers chart pattern.
What Is The Three White Soldier Chart Pattern?
The three white soldiers chart pattern is a bearish reversal chart pattern.
It consists of 3 consecutive bullish candlesticks that have the following characteristics:
- each candlestick closes higher than the one before which means that the bulls are aggressively driving prices up
- the second and the third candlesticks open within the body of the candlesticks preceding them. (Now, in forex, which is the most liquid market in the world, it would be really rare for you to see this situation so we can make an exception here and ignore this condition)
- ideally, each candlestick should have no upper shadow at all, which indicates that the bulls are able to keep prices up at just around the high of that particular period or timeframe.
- all 3 candlesticks should have bodies of approximately the same size
This USDCHF daily chart below, you can see an example of a three white soldiers chart pattern:
- Note that market has been downtrend.
- three white soldiers chart pattern forms just after or coinciding with a triple bottom chart pattern, indicating a strong buying action by the bulls.
- and after the formation of the 3 white soldiers, you can see price moved down temporarily but then that downward movement failed and market moves up in an uptrend
Trading Parameters And Requirements
Currency Pairs: Any
Forex Indicators: no forex indicators are required for this forex trading strategy, just your eyes…
Forex Trading Sessions: Any but preferably the London and New York Forex Trading Sessions
This is a bullish pattern so only buying rules will apply here:
- Place a pending buy stop order 1-2 pips above the high of the 3rd candlestick
- place your stop loss order 1-2 pips below the low of the first candlestick
- for take profit, you can use 1:3 risk to reward ratio to calculate your profit target or use a previous swing high point to take profit once price reaches that level as long as you have a positive risk:reward ratio.
Another Way To Trade The Three White Soldier (Buy On Downward retracements)
In my opinion, I would not like to trade the three white soldiers chart pattern based on the rules given above.
There are 3 things I don’t like:
- the stop loss distance is huge
- if the stop loss distance is huge, it has a direct impact on my risk:reward ratio.
- the buying may have been overstretched and by the time you place your buy order, price may not directly continue to go up but start heading down!
So the big question is this: is there any other way this 3 white soldiers chart pattern can be traded without a large stop loss distance associated with it?
How? By buying on any downward retracements made after the formation of the three white soldiers chart pattern.
In order to do that,you look for things like:
- resistance turned support levels or zones,
- fib retracement levels like 38.2 or 68.1
- and confirm your buy signal with bullish forex reversal candlestick patterns and go long.
The chart below is of the very same chart given above but if you look closely enough, you will see that a resistance level was broken as price moved up and after the formation of the 3 white solders.
But then price came down, hit that broken resistance levels which now acted as resistance-turned-support, thus pushing price up.
This my friends, is the better way to trade the 3 white soldiers chart pattern:
Disadvantages of The 3 White Soldier Chart Pattern Forex Trading Strategy
- as mentioned above, buying wold have been overstretched by the bulls and after that there is the likelihood that price may make retracements downward. Where the downward retracement is temporary (which means it fails and price later rises up) is left to be seen.
- stop loss distances tend to be “humongous” if you are trading off the daily and the 4hr char and even the 1 hr chart.
- if the stop loss distances are huge, this would have a direct impact on your risk:reward ratio.
Advantages Of The three white soldiers chart pattern Forex Trading Strategy
- Buying on temporary downward retracements can give you really good risk:reward ratio should your trade works out as anticipated.
- if your trading setups are based on larger timeframes and you are willing to keep your trades running for days, you can make 100’s pips plus in profits with just one trade.
Other Trading Resources In This Site You May Be Interested In
- Free Forex Price Action Trading Course
- Free Forex Swing Trading Course
- Free Multiple Timeframe Trading Course
- Free Price Action Forex Trading Signals (Provided Weekly)
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