Written and copyright © 2008-2013 by Thomas N. Bulkowski. All rights reserved.
In my book,
Encyclopedia of Candlestick Charts, pictured on the right,
I explore the entire range of candlestick patterns from abandoned babies to windows (not exactly A to Z, but you get the idea), in both bull and bear markets, using almost 5 million candle lines
in the tests.
The book takes an in-depth look at 103 candlestick patterns and reports on behavior and rank (3 types: reversal rate, frequency, and overall performance), identification guidelines,
performance statistics (tables of general statistics, height, and volume), trading tactics (tables of statistics on reversal rates and performance indicators),
and wraps each chapter with a sample trade. I share a sliver of that information below. If you like what you read here, then you will love the book. Help support this website and buy a copy
by clicking on the above link.
The three white soldiers is one of the few candlestick patterns that I am proud to say I know. Yes, samples of the candle pattern are as rare as finding a $5 bill on the street, but
it performs very well. It acts as a bullish reversal 82% of the time, ranking 3 out of 103 candlestick types, where 1 is best. When you consider that the close is awfully close to the top
of the last candle in a series of three rising candles, the performance is not so good. For a downward breakout to occur, price would have to make a serious drop and plummet even more to
push up the performance score. In fact, the high performance is due to just those factors: few candles with downward breakouts. Those with upward breakouts have lousy performance. So
maybe I am less proud to say that I know the three white soldiers.
Three White Soldiers: Important Results
Theoretical performance: Bullish reversal
Tested performance: Bullish reversal 82% of the time
Frequency rank: 67
Overall performance rank: 32
Best percentage meeting price target: 34% (bull/bear market, up/down breakout)
Best average move in 10 days: -7.66% (bear market, down breakout)
Best 10-day performance rank: 4 (bull market, down breakout)
All ranks are out of 103 candlestick patterns with the top performer ranking 1. "Best" means the highest rated of the four combinations of bull/bear market, up/down breakouts.
The above numbers are based on hundreds of perfect trades. See the glossary for definitions.
Three White Soldiers
Three White Soldiers: Discussion
The three white soldiers candlestick pattern acts as a bullish reversal 82% of the time. What that means is it is more likely to breakout upward (a close above the top of the highest candle)
than it is to breakout downward (a close below the lowest of the three candles). Duh. Just 593 out of 3,333 samples showed downward breakouts.
The candle ranks 67 for rarity, where a rank of 103 is unknown and 1 is a rock star. The overall performance is 32 and that means price does not trend all that well after the breakout.
Nevertheless, after a downward breakout in a bear market, price can drop 7.66% on average, over 10 days, but that uses just 56 samples. I consider a move of 6% to be a gift.
The best 10-day performance rank for the three white soldiers candle belongs to downward breakouts in a bull market. I found 537 examples of those, so the sample count is a bit thin.
Three White Soldiers: Identification Guidelines
|Number of candle lines||Three.|
|Price trend leading to the pattern||Downward.|
|Configuration||Look for three tall white candles, each with a close near the high, higher closes, and bodies that overlap (an opening price within the
prior candle's body.|
Three White Soldiers: Three Trading Tidbits
If you want a few bones from my Encyclopedia of candlestick charts book, here are three to chew on. The pages refer to the book
where the tips appear.
- Look for three white soldiers that appear as an upward retrace in a downward price trend. Expect the downtrend to continue -- page 799.
- Three white soldiers within a third of the yearly high frequently act as reversals -- page 800.
- Volume gives performance clues -- page 798-799.
Three White Soldiers Example
Circled in red is the three white soldiers candlestick pattern. Each of the three candles is white, tall, opens within the body of the prior
candle and closes higher, with a short upper shadow (meaning each white candle closes near the high).
Price continues rising for a fourth day before tumbling. Although the breakout from this three white soldiers is upward, you can see how the trend quickly reverses.
A short move after an upward breakout is typical for this pattern. And the breakout is a close either above the high or below the low of the three line pattern.
This is an example of the three white soldiers
appearing as a retrace in a primary down trend (see Three Trading Tidbits, above). After the retrace completes, the downward price trend resumes.
-- Thomas Bulkowski
Copyright © 2008-2013 by Thomas N. Bulkowski. All rights reserved. Consciousness: that annoying time between naps.