Improve your Forex trading results by learning about the Three White Soldiers and Three Black Crows trading strategy.
This powerful approach is based on two crucial candlestick chart patterns that work in tandem to predict potential trend reversals. In this article, we will explore the details of these patterns and provide instructions on implementing this trading strategy effectively.
What Is The Three White Soldiers Candlestick Pattern
Three green bullish candlesticks form consecutively, creating the Three White Soldiers pattern.
Each candlestick must open within the body of the previous candlestick.
Each candlestick must close higher than the previous one.
When you observe the Three White Soldiers pattern in a downtrend it could signal a bullish trend change. Long candle bodies show increased bullish activity, either from new buyers entering the market or short traders taking profits.
Unraveling the Three Black Crows Candlestick Pattern
The Three Black Crows pattern is the opposite of the Three White Soldiers pattern. It is a bearish reversal candlestick pattern consisting of three consecutive bearish candlesticks.
Here’s how it forms:
The market must be in an uptrend.
Three bearish candlesticks form consecutively, creating the Three Black Crows pattern.
Each candlestick must open within the body of the previous candlestick.
Each candlestick must close lower than the previous one.
When you see the Three Black Crows pattern in an uptrend, pay attention, as it could indicate an impending trend change.
Trading with Three Black Crows and Three White Soldiers
The beauty of this trading strategy is that it relies on pure price action, without the need for additional indicators.
Keep the following points in mind when using this strategy:
Time Frame: Higher time frames tend to yield better results, but intra-day trading is also possible.
Currency Pairs: Any trending currency pair is a suitable candidate for this reversal pattern.
Indicators: No trading indicators are required, as the strategy is based on pure price action.
Three White Soldiers Pattern
Place a buy-stop order 3-5 pips above the high of the 3rd candlestick.
Three Black Crows Pattern
Place a sell stop order 3-5 pips below the low of the 3rd candlestick.
Stop Loss Placement
For a sell stop order, place stop loss above the 3rd candlestick’s high. For a buy stop order, place stop loss below the 3rd candlestick’s low.
Target previous swing highs or lows for taking profits.
Stop Loss Movement
Move stop loss to break even when the price moves by the amount risked or when a swing high or low is made.
Partial Profit Taking
Take partial profits when the price reaches at least the halfway point to your take-profit target level.
Important Trading Tips
Not all Three White Soldiers or Three Black Crows patterns should be used as trading signals. Like most trading patterns, location and context matter.
Look for significant levels, such as support and resistance levels, pivot levels, and Fibonacci levels. Be cautious when trading outside these levels, as there may be no reason to expect price movement.
Also, exercise caution when trading after consolidation. Price breakouts from consolidations often lead to reversals and retests. If you are in a Three White Soldiers or Three Black Crows trading position, you may get stopped out due to the nature of the market movement.
Disadvantages of the Three White Soldiers and Three Black Crows Forex Trading Strategy
While the Three White Soldiers and Three Black Crows trading strategy can be highly effective, it’s essential to be aware of its potential drawbacks:
Substantial Price Movements
The distance moved by these patterns can be significant, leading to a far stop loss placement. This situation may require you to reduce your position size to maintain proper risk management, potentially limiting your profits.
The patterns may only indicate a temporary reversal, causing you to get stopped out. This risk underscores the importance of considering the overall market context and significant levels to improve the accuracy of your trades.
Like any other trading strategy, the Three White Soldiers and Three Black Crows patterns can sometimes generate false signals. Traders must exercise caution and employ sound risk management techniques to minimize losses in such cases.
Requires Patience and Discipline
This strategy relies on specific candlestick patterns that may not form frequently, requiring patience and discipline from traders. Those who are not comfortable waiting for the right setup might find this strategy challenging.
Potentially Lower Success Rate in Lower Time Frames
While the strategy is effective in larger time frames, its success rate may be lower in smaller time frames, such as the 15-minute or 30-minute chart. This issue can be due to increased market noise and more minor price fluctuations in lower time frames.
Requires Contextual Analysis
For the strategy to be successful, traders must consider the overall market context, including support and resistance levels, pivot levels, and Fibonacci levels. Traders who rely solely on pattern formation without considering the broader context may experience reduced success rates.
Advantages of the Three White Soldiers and Three Black Crows Forex Trading Strategy
Despite the disadvantages, this strategy offers several benefits when executed correctly:
Higher Probability of Trend Reversals
The Three White Soldiers and Three Black Crows patterns are reliable indicators of potential trend reversals. Identifying these patterns in the appropriate market context can provide high-probability trading opportunities.
Minimal Reliance on Indicators
This trading strategy is based on pure price action, which means you don’t need to rely on multiple technical indicators. This simplicity makes it easier for traders to focus on the patterns and market context without being overwhelmed by a cluttered chart.
Profitability in Larger Time Frames
The strategy works well in larger time frames such as the 1-hour and above. Trading in these time frames can lead to more pips, as larger time frames generally exhibit more substantial price movements.
Applicable to Various Currency Pairs
This trading strategy can be applied to any trending currency pair, making it a versatile tool in a trader’s arsenal. This flexibility allows traders to take advantage of profitable opportunities across different markets.
Effective Risk Management
By placing stop-loss orders according to the rules outlined in the strategy, traders can effectively manage their risk. This approach ensures that losses are limited when the market moves against a position, providing an essential safety net.
Enhanced Profit-taking Strategies
The strategy encourages traders to take partial profits when the price reaches at least the halfway point to the take-profit target level. This practice allows traders to lock in profits while still giving the trade room to reach its full potential.
The Three White Soldiers and Three Black Crows Forex trading strategy offers numerous advantages when applied correctly. By identifying reliable trend reversal patterns, minimizing the need for using trading indicators, and focusing on larger time frames, traders can increase their profitability while managing risks effectively.
This versatile strategy can be applied to various currency pairs, allowing traders to seize opportunities across different markets.
With proper execution and risk management, this strategy can be a powerful addition to any trader’s toolkit.
I hope you enjoyed learning about “3 white soldiers and 3 black crows trading strategy“. Please remember that all trading strategies should be tested before using real money!