The Three Soldiers Pattern in Crypto Trading: Signal of a Bearish to Bullish Reversal

In cryptocurrency trading, technical chart analysis remains one of the primary tools for forecasting price movements. The high market volatility requires traders to have a deep understanding of various candlestick formations. One of the most reliable patterns indicating a possible trend reversal is the Three Soldiers pattern. This formation often signals the end of a bearish period and the beginning of an upward movement, allowing experienced traders to profit from the market reversal.

Structure and Visual Description of the Three Soldiers Pattern

The Three Soldiers pattern is a reversal model consisting of three consecutive green candles. Each candle opens higher than the previous close and closes at a new high. A characteristic feature of this formation is the almost complete absence of upper wicks or their minimal presence, indicating active buying pressure continuously pushing asset prices upward.

This model typically appears at the bottom of a declining trend after a series of drops or a sideways consolidation period. The formation of the three soldiers indicates a change in market sentiment — bears are gradually losing control, and bulls are starting to dominate the market. The Three Soldiers pattern is rarely found in the middle of an uptrend; its appearance is most significant at pivotal moments.

Practical Application in Trading

Knowing this formation helps traders make informed decisions about entering long positions. When the Three Soldiers form after a sustained bearish move, it provides a clear signal to open buy orders. For short-sellers, the appearance of this model signals closing losing positions and exiting the market.

The main advantage of the Three Soldiers pattern is its informativeness. It allows assessing the current psychological state of market participants through analysis of trading volumes and the buy-to-sell ratio. When the reversal is accompanied by increasing trading volume, the likelihood of an upward trend developing significantly increases.

How to Recognize the Formation on a Chart

Searching for the Three Soldiers pattern begins with identifying a local minimum. Then, three consecutive candles should be identified, each closing higher than the previous maximum. The combination of these signs indicates an increasing probability of a bullish reversal.

Key elements for identification:

• A clearly defined local minimum followed by two sequential higher lows
• Three fully green candles with short or no upper wicks
• Strict upward sequence of closing prices
• Positive trading volume dynamics during the formation of each candle

Real Historical Example

On February 15, 2023, on the BTC/USD pair, a formation occurred that vividly demonstrates the strength of the Three Soldiers pattern. After a bearish candle on the chart, a trio of rising candles was clearly established, each with minimal upper wicks. The first candle started with a small rebound, and the second and third candles opened at the previous close and steadily moved upward.

The breakout occurred from levels $21 254 to $22 266.93. The Relative Strength Index (RSI) reached 72.10, in the overbought zone, confirming the strength of the upward pressure. The subsequent price movement was a distinctly upward trend, confirming the reliability of the signal provided by the three soldiers.

Conditions for Increasing Signal Reliability

The Three Soldiers pattern works most effectively when certain conditions are met. First, the market context is crucial. The formation should occur at the end of a declining trend or near a support level, but not during sideways consolidation. If the three soldiers form during sideways movement, the signal may be false.

Second, an increase in trading volume during the formation of each candle significantly raises the probability of a genuine reversal. High volume indicates good economic indicators for the asset and genuine interest from buyers.

Combining with Other Indicators

Relying solely on the Three Soldiers pattern is not advisable. Better results can be achieved by combining it with technical indicators. The Relative Strength Index (RSI) is ideal for confirming signals, as it tracks the pace and impulse of market movements. When the Three Soldiers form, RSI usually enters the overbought zone (above 70), which reinforces the bullish signal.

It is also recommended to use MACD to confirm a change in momentum and analyze trading volumes to assess interest in the asset. A comprehensive analysis increases forecasting accuracy and reduces the risk of false signals.

Main Risks and Limitations

Despite its effectiveness, the Three Soldiers pattern has a significant drawback — the FOMO effect (fear of missing out). Since the formation concludes only after the third, highest candle, traders are forced to enter positions after a substantial upward price movement. Although the probability of continued growth is high, the market can reverse at any moment, turning the position into a loss.

Additionally, during consolidation periods, the Three Soldiers pattern becomes a less reliable tool. The market may reverse after just the second candle if the price encounters a local resistance. Therefore, it is necessary to combine pattern analysis with key support and resistance levels assessment.

Common Trader Questions About the Pattern

When does the Three Soldiers pattern usually appear?
Most often, it appears at the end of a bearish move when the downward trend has almost exhausted its potential. It can also occur after prolonged sideways trading with a subsequent upward breakout.

How accurate is the forecast?
The Three Soldiers pattern provides a fairly reliable signal when confirmed by other indicators and considering the market context. Its accuracy increases with rising trading volume.

Can the pattern appear during an uptrend?
Appearance during a growth phase is possible, but in this case, it loses significance as a reversal signal and can only be considered as confirmation of the continuation of the upward movement.

How to distinguish it from the similar Black Crow pattern?
This is an opposite formation: instead of three green rising candles, there are three red falling candles, each closing lower than the previous one. It signals the start of a bearish trend.

The Three Soldiers pattern remains a valuable tool in a technical analyst’s arsenal, especially when used in conjunction with other analysis methods and considering the overall market context.