From bears to bulls: why the three soldiers pattern is critical for traders

When the price of an asset has been falling for a long time, a moment arrives that experienced traders watch especially closely — the trend reversal point. In the cryptocurrency market with its extreme volatility, recognizing this moment can mean the difference between a losing position and significant profit. One of the most reliable signals of such a reversal is the Three Soldiers pattern — a iconic candlestick formation that literally indicates a shift in market power.

How the market changes direction: anatomy of the Three Soldiers pattern

The Three Soldiers pattern is not just three green candles on a chart. It reflects a psychological turning point in the market, where sellers, who dominated during the downtrend, begin to lose momentum, and buyers gradually take control.

A formal definition is simple: the pattern consists of three consecutive large green candles, each opening and closing higher than the previous one. But details matter. The wicks of these candles are usually minimal or absent altogether — this is a key indicator. Short or absent wicks indicate strong buying pressure that prevents the price from pulling back downward. This is not fluctuation — it’s a decisive move upward.

The Three Soldiers pattern almost always appears after a period of consolidation or, more often, right at the bottom of a downtrend. It does not occur randomly or in the middle of an upward movement — this specific localization makes it a valuable signal.

Why traders pay close attention to this formation

Market experience shows that the Three Soldiers pattern functions not just as a pretty technical picture. It performs several critically important roles.

First, it is a very clear signal of the end of a downtrend. When the pattern forms, it indicates that the bears have exhausted their potential. Traders holding short positions in anticipation of further decline face the need to close their positions. At the same time, more aggressive market participants begin opening long positions, seeing the potential for an upward move.

Second, the Three Soldiers pattern allows assessing the current balance of supply and demand. By analyzing the trading volumes accompanying each of the three candles, one can understand how confident buyers are in their actions. Increasing volumes on each subsequent candle reinforce the significance of the signal.

Third, this formation provides clear entry and exit points. For speculators betting on a decline, it’s a moment to close losing positions. For potential longs, it’s a probable start of a new upward wave, where one can catch the movement from the earliest stages.

Real market: how the Three Soldiers pattern predicted a major BTC rally

Abstract descriptions don’t always work. Let’s look at a specific example that demonstrated the power of this pattern in action.

In February 2023, an important event occurred on the BTC/USD chart. After a prolonged downtrend, a pattern of Three Soldiers formed at the bottom. The first candle appeared with a minimal wick, signaling the start of a potential reversal. The second and third candles followed in the same order — each opened at the close of the previous one, each closed higher than the previous high.

The third candle broke through levels that served as key points: support and resistance shifted from $21 254 to $22 266.93. But the most interesting part was the RSI index, which rose into overbought territory at 72.10. Overbought conditions are usually a warning, but in the context of the Three Soldiers pattern, it confirmed the start of a strong bullish movement.

After the pattern formed, exactly what the analysis predicted happened: a sharp price jump and a sustained upward movement. Buying pressure on the asset increased significantly, and the trend changed direction.

When the pattern works flawlessly: conditions for application

However, the Three Soldiers pattern is not a universal indicator that always triggers. Its effectiveness depends on the context.

Market conditions are paramount. The pattern is most reliable when it forms at the tail end of a downtrend or near key support levels. If the Three Soldiers appear during sideways consolidation or in the middle of an uptrend, their predictive power weakens. In such cases, the pattern can be a false signal, especially if the price remains within a consolidation range.

Trading volume is a test of the signal’s authenticity. When the Three Soldiers pattern appears against a backdrop of rising trading volume, it significantly increases the likelihood of a true reversal. High volume confirms that market participants are seriously interested in a reversal. Low volume, on the other hand, may indicate a weak signal and its possible invalidity.

Amplifying the signal: combining with other indicators

Experienced traders rarely rely on a single indicator, and the Three Soldiers pattern is no exception. Its effectiveness greatly increases when combined with other analysis tools.

RSI (Relative Strength Index) is one of the most synergistic partners for this pattern. RSI tracks momentum and the speed of price movements. When the Three Soldiers pattern forms and RSI enters overbought territory or shows bullish divergence, it creates a powerful double signal. MACD complements the analysis by showing line crossovers that confirm a change in momentum. As mentioned earlier, trading volume adds a third level of confirmation.

Such a combination of indicators significantly reduces false signals and helps traders make more informed entry decisions.

Hidden dangers and psychological traps

Behind the apparent simplicity of the Three Soldiers pattern lie pitfalls that are especially dangerous for inexperienced traders.

The first trap is the FOMO effect (Fear Of Missing Out). The pattern forms and completes only after the third, highest candle appears. By this point, the price has already risen significantly from the reversal bottom. Traders entering a long position at the end of the third candle buy the asset at the maximum price, hoping the rally will continue. While statistically the probability of further growth is high, the market can reverse at any moment. Such pullbacks can quickly turn a position into a loss.

The second danger is overestimating the pattern itself. Some traders treat the Three Soldiers as an almost infallible law, ignoring that the market never operates by strict rules. Even if the pattern is perfectly formed, macroeconomic conditions, major news, or actions by large players can drastically change the direction.

The third trap is ignoring the broader context. A pattern appearing during low liquidity periods or before major macroeconomic events has a very different status than one in normal market conditions.

Opposite signal: what the Three Black Crows pattern indicates

It’s interesting to consider the mirror pattern — the Three Black Crows. If the Three Soldiers signals a reversal from bears to bulls, then the Three Black Crows indicate the opposite: a possible reversal from bulls to bears.

In this pattern, three dark candles close sequentially below the previous ones, forming a descending order. This reflects increasing selling pressure and weakening buyer interest. The presence of these two opposite signals provides traders with a complete toolkit for analyzing reversals in both directions.

Practical conclusions for application

The Three Soldiers pattern is indeed one of the most effective tools in technical analysis on the cryptocurrency market. However, its application requires discipline and understanding of the context.

Use the pattern most effectively when:

• It forms at the bottom of a downtrend, not during sideways consolidation
• Accompanied by rising trading volume
• Confirmed by additional indicators (RSI, MACD)
• You understand current macroeconomic conditions and news background

Avoid applying it when:

• Entering a position at the end of the third candle during an extreme price rally
• Ignoring the context and relying solely on the pattern
• Trading during periods of low liquidity
• Neglecting risk management and position control

The Three Soldiers pattern remains a powerful indicator, but it is just one of many tools that should be part of an experienced trader’s arsenal.