the hAnDbook of technIcAl AnAlysIsDescription:■ (^) The three white soldiers formation is a triple candlestick reversal pattern. See
Figure 14.33.
■ (^) All three candlesticks are bullish and their real bodies should overlap. The
three real bodies should close with successively higher highs.
■ (^) The upper and lower shadows are not significant.
■ (^) The color of the three candlesticks is highly significant.
■ (^) It is best found in a protracted downtrend that is beginning to display weakness.
■ (^) Its corresponding bearish version is the three black crows formation.
Psychology:
■ (^) The three white soldiers formation is found at the bottom of a bearish trend
where the sellers were initially in control. Then the buyers began to drive the
prices up with the appearance of the first strong bullish candlestick. The sellers
try to resume control, evidenced by the downside opening gap in the second
candlestick. But the buyers drive prices up further. The process is repeated one
last time before the sellers retreat by relinquishing whatever control they had
left in the market. The bulls are now in control.
Trigger, Stoploss, and Confirmation:
■ (^) The trigger is at the high of the second bullish candlestick.
■ (^) To confirm the reversal, the third candlestick needs to close above this trigger level.
■ (^) The stoploss is placed at the low of the first bullish candlestick or pattern.
■ (^) A sellstop entry order may be placed at the low of the candlestick pattern only
if there is evidence that the downtrend is still in effect.
See Figure 14.34. The three white soldiers rebounded on the uptrend line and
lower Bollinger Band.
figure 14.34 Three White Soldiers on the Daily Chart of World Wrestling Entertain-
ment Inc.
Courtesy of Stockcharts.com