How to Trade Using the 3 Candle Pattern: A Complete Guide

In trading, pattern recognition remains one of the most powerful tools for forecasting price movements. Among various price action setups, the 3 Candle Pattern stands out due to its straightforwardness, dependability, and adaptability across different markets.

Whether you're a beginner just learning to read candlesticks or a seasoned trader looking to refine your strategy, mastering the 3 Candle Pattern can add clarity and precision to your entries and exits.

In this guide, we'll explore the 3 Candle Pattern by explaining what it is, outlining its key types, showing you how to identify and confirm the setup effectively, providing practical trading strategies, and essential risk management tips.

What Is the 3 Candle Pattern?

The 3 Candle Pattern refers to a group of candlestick formations that involve three successive candles. These patterns signal a reversal or continuation of a trend, depending on the structure and market context.

In contrast to single candlestick patterns (Doji) or two-candle patterns (engulfing), the three-candle pattern offers greater confirmation, helping traders avoid false signals.

The most well-known 3 candle formations include:

• Three White Soldiers

• Three Black Crows

• Morning Star

• Evening Star

• Three Inside Up/Down

These can appear at key market turning points or during consolidation before a trend resumes.

Top 5 Three Candle Patterns

1. Three White Soldiers (Bullish Reversal)

Description:

This pattern appears following a downtrend and consists of three long bullish candles, with each closing above the previous.

Characteristics:

• All three candles have small or no wicks

• Each opens within the previous candle's body

• Consistent upward momentum

Signal:

Strong bullish reversal, especially when volume increases or when forming near a support zone.

Strategy:

• Entry: After the close of the third candle

• Stop-loss: Below the first candle's low

• Take-profit: Use a 1:2 risk-reward or the next resistance level

2. Three Black Crows (Bearish Reversal)

Description:

It serves as the negative equivalent of the Three White Soldiers. It appears after an uptrend and consists of three long bearish candles closing progressively lower.

Characteristics:

• Each candle opens within the previous candle's body

• Lower closes indicate strong bearish momentum

• Small wicks suggest dominance by sellers

Signal:

Bearish reversal, especially pronounced near resistance levels or following prolonged uptrends.

Strategy:

• Entry: After the third candle closes

• Stop-loss: Above the first candle's high

• Take-profit: Target recent support zones

3. Morning Star (Bullish Reversal)

Description:

The Morning Star is a classic bottom reversal setup with three distinct candles:

• First candle: Large bearish

• Second candle: Small body (Doji/spinning top), showing indecision

• Third candle: Large bullish candle closing above the midpoint of the first candle

Signal:

Indicates sellers are losing control, and buyers are stepping in.

Strategy:

• Entry: After the third candle closes

• Stop-loss: Below the lowest point of the pattern

• Confirmation: RSI divergence or support zone strengthens the signal

4. Evening Star (Bearish Reversal)

Description:

This pattern is the opposite of the Morning Star and occurs at market tops:

• First candle: Strong bullish candle

• Second candle: Indecision (Doji/spinning top)

• Third candle: Bearish candle closing below the midpoint of the first candle

Signal:

Momentum transitions from bulls to bears, indicating a change in trend.

Strategy:

• Entry: After confirmation of the third candle

• Stop-loss: Above the pattern's high

• Risk management: Avoid entries in strong uptrends unless confirmed with indicators

5. Three Inside Up/Down (Reversal Pattern)

Three Inside Up (Bullish):

• Candle 1: Large bearish candle

• Candle 2: Smaller bullish candle (inside the first)

• Candle 3: Bullish candle closing above the first

Three Inside Down (Bearish):

• Candle 1: Large bullish candle

• Candle 2: Small bearish candle (inside the first)

• Candle 3: Bearish candle closing below the first

Signal:

A sudden move followed by a momentum reversal often indicates a correction or shift in trend.

How to Identify the 3 Candle Pattern

To recognise these setups accurately:

• Use candlestick charts, not line or bar charts

• Look for the patterns near support/resistance, trendlines, or moving averages

• Check for volume spikes to validate conviction

• Avoid trading them in choppy or sideways markets

3 Candle Pattern Across Timeframes

Ideal Conditions:

• Clear prior trend

• Clean candle bodies with minimal wicks

• Appears near known price zones

• Confirmation from RSI, MACD, or momentum indicators

Risk Management and Common Mistakes for 3 Candle Patterns

As for common rookie mistakes, here are what beginners should look out for:

• Ignoring market context: Don't trade the pattern without trend analysis

• Entering too early: Always wait for the third candle to close

• No confirmation: Combine with other tools for a higher probability

• Improper risk management: Always use stop-losses and position sizing

Conclusion

In conclusion, the 3 Candle Pattern is more than just a visual formation; it's a window into market sentiment and price psychology. Whether signalling a reversal like the Morning Star or confirming bearish momentum with Three Black Crows, these patterns offer high-probability setups across all markets.

Therefore, to trade the 3 Candle Pattern successfully, it's essential to understand its structure and the broader market context, use confluence with other indicators for stronger signals, apply disciplined risk management, and study real chart examples for practical insight.

Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.