How to identify a bullish reversal: a guide to the "Three White Soldiers" pattern

Traders in the cryptocurrency market are constantly looking for reliable signals to enter a position. One of the most vivid and recognizable technical analysis indicators is the “Three White Soldiers” pattern. This candlestick pattern signals a reversal of an upward trend and helps catch the beginning of a price increase after a prolonged decline.

Structure and Features of the “Three White Soldiers” Pattern

The “Three White Soldiers” pattern consists of three consecutive green candles, each opening higher than the previous close and closing even higher. This is not just a coincidence of price movements — it reflects increasing buying pressure in the market.

Key features:

• The three candles are arranged in an ascending order
• Short wicks or their complete absence (trend strength indicator)
• A local minimum before the pattern formation begins
• Each candle closes above the previous high

Why are these characteristics important? They demonstrate that sellers have lost control of the market, and buyers are sequentially taking the initiative. The pattern often appears after consolidation or at the very end of a downtrend.

When and Where to Look for This Pattern

The “Three White Soldiers” pattern is most effective at the bottom of a downtrend when the market has already exhausted its potential to fall. Short sellers receive a signal to exit, and those waiting to go long find an entry point after a steady decline.

Important point: market context is a decisive factor. If the pattern forms in the middle of consolidation, its reliability significantly decreases. The market may rise briefly and then return to resistance, leaving traders at a loss.

Real Example on the BTC/USD Chart

A vivid demonstration of the pattern’s effectiveness occurred on February 15, 2023, on the BTC/USD pair. The chart clearly shows a bearish reversal preceding the formation of the “Three White Soldiers.” The first candle appeared with a minimal wick, while the second and third gained strength, each opening higher than the previous.

The result was impressive: the third candle broke through resistance levels previously set at $21 254 and $22 266.93. The Relative Strength Index (RSI) reached 72.10 — an overbought zone, confirming the start of a bullish reversal. The subsequent price action fully justified the pattern’s signal.

Combining with Other Indicators

The “Three White Soldiers” pattern works best in conjunction with technical indicators. RSI shows the market’s impulse strength — during pattern formation, it should move toward overbought levels. MACD confirms the strengthening of the upward momentum, and rising trading volumes indicate the authenticity of the reversal.

Ignoring other indicators is a common mistake among beginners. The pattern itself is just a visual signal; confirmation comes precisely from volumes and impulse indicators.

Opposite Signal: the “Three Black Crows” Pattern

If you see three consecutive black candles, each closing lower than the previous one, this is a mirror image of the “Three White Soldiers.” The “Three Black Crows” pattern signals the beginning of a bearish trend and recommends traders close long positions or enter shorts.

Risks and Limitations

The main issue with the pattern is the FOMO effect. The third candle, completing the pattern, often forms at the maximum. Traders entering at this stage buy the asset at the highest price in this sequence. Although the probability of further growth is indeed high, the market can reverse at any moment, turning the position into a loss.

An additional condition for reliability: trading volume. A pattern that appears with increasing volumes is much more probable. If the three candles form with low volumes, it could be a false signal that will soon reverse.

Practical Application of the Pattern

Traders use the “Three White Soldiers” in two scenarios:

• Entering a long position: opening a long after the third candle if confirmation from RSI and volumes is present
• Closing positions: short sellers use the pattern as a signal to exit losing positions

However, relying solely on this pattern is incorrect. A comprehensive analysis is always required: trend context, support and resistance levels, technical market conditions, and participant psychology.

Conclusions

The “Three White Soldiers” pattern is a proven tool for identifying trend reversals in the cryptocurrency market. Its effectiveness has been demonstrated by historical examples, including the case with BTC/USD in February 2023. However, success in trading this pattern depends on the ability to combine it with other indicators, observe market context, and strictly manage risk. The trio of white candles is just the beginning of the conversation in the market, but certainly not its end.