Three White Soldiers is the strongest candlestick pattern. It is formed at the end of a downtrend. Thus, this directly means that the formation of a Three White Soldiers pattern signals the end of a downtrend and a beginning of an uptrend. This is why the Three White Soldiers pattern is called a bullish reversal pattern.
According to the book Think, Trade and Grow Rich, the Three White Soldiers pattern has an accuracy of 82%. While investors will debate on a statistical number, just know that this pattern has a pretty high accuracy rate.
This is how to spot a Three White Soldiers pattern on a candlestick chart:
1) Like in all the patterns we are going to discuss, the long-term trend (1-year trend) should be in an uptrend. There is very little chance to succeed if the long-term trend is against your favor. Remember, it is difficult to swim against the tide. Our job as technical chart readers is to wait for the right time when the tide itself is going where we want to go.
2) The intermediate-term trend (3 months trend) should also be preferably bullish.
3) There should be a minor correction or a pullback. Remember, as a trend follower, a minor pullback after a bullish upswing is the best time to enter.
4) There should be a formation of three extended bullish (green) candles.
5) Each candle’s closing should be near the previous day’s high.
6) The candle bodies should preferably overlap.
7) It is better if the candles are increasing in size, i.e. if their size is ascending.
8) Each day should close near its high for the day.
9) The opens should be within the top half of the previous body.
A Three White Soldiers pattern needs no further confirmation. You can buy the shares on the next day after the formation of the third candle. Apart from having high accuracy, the Three White Soldiers pattern has high strength. This means that the uptrend will continue for quite some time. You can exit after you hit your target or after the formation of a bearish reversal signal like a Doji or a Dark Cloud Cover pattern.