The three white soldier forex chart pattern forex trading strategy is based on a specific pattern called the three white soldiers chart pattern.
Here, you will learn what a three white soldiers pattern is and some other techniques on how to trade the three white soldiers forex chart pattern.
What Is The Three White Soldier Forex Chart Pattern?
The three white soldiers’ forex chart pattern is a bearish reversal chart pattern.
It consists of 3 consecutive bullish chart candlesticks that have the following characteristics:
- each chart candlestick closes higher than the one before, which means that the bulls are aggressively driving prices upward
- the second and the third chart candlesticks open within the body of the candlesticks preceding them.
- Ideally, each chart candlestick should have no upper shadow at all, indicating that the bulls can keep prices up at just around the chart high of that particular period or mt4 timeframe.
- all three candlesticks should have bodies of approximately the same size
In this USDCHF daily chart below, you can see an example of a three white soldiers chart pattern:
- Note that the market has been down.
- Three white soldiers’ forex chart pattern forms just after or coincide with a triple bottom chart pattern, indicating a solid buying action by the bulls.
- and after the formation of the three white soldiers, you can see the price moved down for now, but then that downward movement failed, and the market moved up in an uptrend
Strategy Trading Parameters And Requirements
MT$ Currency Pairs: Any
MT4 Timeframes: Any
Other Forex Indicators: no forex indicators are required for this forex trading strategy, just your eyes.
Trading Sessions: Any but preferably the forex London and New York Trading Sessions
Strategy Buying Rules
This is a bullish chart pattern, so only buy rules will apply here:
- Place a 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
- To take profit, you can use a 1:3 risk to reward ratio to calculate your profit target (TP) or use a previous swing high point to take profit once the price reaches that chart level as long as you have a good positive risk: reward(R: R) ratio.
Another Way To Trade The Three White Soldiers
In our opinion, we would not like to trade the three white soldiers’ chart patterns based on the rules given above.
There are three things we don’t like:
- the stop loss distance is huge
- If the stop loss distance is vast, it directly impacts my risk: reward ratio.
- The buy may have been overstretched, and by the time you place your buy order, the price may not continue to go up but start heading down!
So the big question is: is there any other way to trade these three white soldiers’ chart patterns without a significant stop loss(SL) distance associated with it?
How? By buying on any down retracements made after the formation of the three white soldiers chart pattern.
To do that, you check for things like:
- forex resistance turned support levels or zones,
- forex fib retracement levels like 38.2 or 68.1
- and confirm your buy entry signal with bullish forex reversal candlestick patterns and go long.
The chart below is given above, but if you look closely enough, you will see that it broke a resistance level as the price increased after the formation of the three white soldiers.
But then the price came down and hit that broken resistance level which now acted as resistance-turned-support, thus pushing the price up.
This, friends is the better way to forex trade the three white soldiers’ forex chart pattern:
Disadvantages of The 3 White Soldier Forex Chart Pattern Trading Strategy
- As mentioned above, buying would have been overstretched with bulls, and after that, there is the likelihood that the price may make retracements down. Where the down retracement is temporary (which means it fails and the price later rises) is left to be seen.
- Stop-loss distances tend to be “humongous” if you are trading off the daily, the 4hr char, and even the 1 hr chart.
- If the stop loss distances are enormous, this would directly impact your risk: reward ratio.
Advantages Of The three white soldiers forex chart pattern Trading Strategy
- Buying on temporary down retracements can give you a reasonable risk: reward ratio should your trade work out as anticipated.
- If your forex trading setups are based on larger mt4 timeframes, and you are willing to keep your open trades running for days, you can make 100’s pips plus good profits with just one trade.