Three Advancing White Soldiers - Candlestick Pattern Trading

THREE ADVANCING WHITE SOLIDERS

The opposite of the three black crows is three advancing white soldiers or, more commonly, three white soldiers (Exhibit 4.28). Like much of the candle terminology, this pattern has a military association. It is a group of three long white candles with consecutively higher closes. If this pattern appears at a low-price area or after a period of stable prices, then it is a sign of strength ahead.

Exhibit 4.28. Three White Soldiers

The three white soldiers are a gradual and steady rise with each white line opening within or near the prior session's white real body. Each of the white candles should close at, or near, its highs. It is a healthy method for the market to rise (although if the white candles are very extended, one should be cautious about an overbought market).

Exhibit 4.29. Advance Block

If the second and third or just the third candle shows signs of weakening, it is an advance block pattern (see Exhibit 4.29). This means the rally is running into trouble and longs should protect themselves. Be especially cautious about this pattern during a mature uptrend. Signs of weakening could be progressively smaller white real bodies or relatively long upper shadows.

Exhibit 4.30. Stalled Pattern

If the last two candles are long white ones that make a new high followed by a small white candle, it is called a stalled pattern (see Exhibit 4.30). It is also sometimes called a deliberation pattern. The bulls' strength has been at least temporarily exhausted after this formation. This last small white candle can either gap away from the long white body (in which case it becomes a star) or it can be, as the Japanese express it, "riding on the shoulder" of the long white real body (that is, be at the upper end of the prior long white real body). The small real body discloses a deterioration of the bulls' power.

Although the advance block and stalled patterns are not normally top reversal patterns, they can sometimes precede a price decline. The advance block and stalled patterns should be used to liquidate or protect longs, but usually not to short. They are generally more consequential at higher price levels.

As shown in Exhibits 4.28 through 6.30, these patterns can be at a low-price area or during a rally.

There is not much difference between the advance block and stalled pattern. The main factor to consider with three white soldiers is that it is most constructive for each of the three candles to close at or near its highs. If the latter two white candles show signs of hesitation, either with small real bodies or upper shadows, then it is a clue that the rally is losing force.

Exhibit 4.31 illustrates almost a classic three white soldiers since each candle, especially the last two, were relatively strong, opening near their lows and closing at, or near, their highs. A sign of hesitation came with the doji on April 23 since it formed a harami cross.

Exhibit 4.32 has a good example of the three white soldiers. Each of the three candle lines closed very near to the highs of the session and each white candle opened within or above the prior white candle. An aspect to consider is by the time the three white soldiers is completed, the market could be well off its lows. In this case, Microsoft was almost $4 from its lows, a high percentage move. Consequently, unless one is longer-term bullish, buying at the completion of these three white soldiers may not present an attractive risk/reward.

I have found that on corrections, the first or second white candle that started the three white soldiers is often support. In this example, the stock consolidated after three white soldiers and slowly pulled back until a hammer was formed. That tended to confirm support within the second white candle of the three soldiers.

In Exhibit 4.33 a base was forming from mid to late June and early July near $36.50. Then three white soldiers emerged (although they had very small upper shadows). After the third white soldier, the stock hesitated and corrected to the first white solider of July 11. This chart again illustrates that the market may sometimes correct after the three white soldiers. We should expect support as the stock gets to the second, or especially the first, white soldier.

An advance block pattern is illustrated in Exhibit 4.34. Although there were three relatively tall white candles, the last

Exhibit 4.31. Intel-Daily (Three White Soldiers)

Exhibit 4.32. Microsoft-Daily (Three White Soldiers)

Exhibit 4.33. Praxair-Daily (Three White Soldiers)

Exhibit 4.34. United Health-Daily (Advance Block)

two had bearish upper shadows. This reflected a stalling of the rally. Indeed, a series of more upper shadows, labelled as 1 and 2, highlighted this resistance near $51. The long upper shadow candle at 2 was a shooting star and the next day completed a bearish engulfing pattern.