Explainer
What is the 3 candlestick rule?
There is no single 3 candlestick rule: the phrase names several different ideas, from three-bar patterns to waiting three candles before entering.
Updated
Several rules share one name
Search for the 3 candlestick rule and you will find different answers. The phrase has no standard definition. Education sites, courses and indicator authors use it for different ideas, so the first step is to find out which one the person means.
These are the usages that come up most often.
- A three-bar pattern. A named formation of three candles, such as three white soldiers, three black crows, the morning star or the evening star.
- A confirmation rule. Spot a setup at a level, wait for the next candle to close in the direction you want, then act on the third candle, with a stop beyond the setup candle’s wick.
- Three bars in a row. Three consecutive bars that each make a new high, or each make a new low, taken as a sign of direction.
- Three white soldiers
- Three rising candles in a row, each closing higher than the one before.
- Three black crows
- Three falling candles in a row, each closing lower than the one before.
- Morning star
- A falling candle, a small candle, then a rising candle. Read as a possible turn up.
- Evening star
- A rising candle, a small candle, then a falling candle. Read as a possible turn down.
The three-bar patterns
The named patterns are simple to describe. Three white soldiers and three black crows are runs of three candles in one direction. The morning star and evening star put a small candle between two larger ones that point opposite ways.
People read these as signs that direction is changing or continuing. That is how they are used. It is not a forecast, and no pattern on a chart has to be followed by anything.
The wait-for-confirmation version
This version is about patience. You do not act on the first candle that looks like a setup. You wait for the next candle to close, check that it moved the way you expected, and only then enter.
The idea is to avoid acting on a candle that is still forming. It also means entering later, at a price that has already moved. Whether the wait helps or costs you is a question about your rules and your market, and it can be tested.
Before you use a rule called the 3 candlestick rule, find out which one is meant, and write it down in full.
Three in a row
The third version counts bars. Three bars in a row that each make a higher high suggest an upward move. Three that each make a lower low suggest a downward one.
Written this way it becomes a rule a computer can follow. You still have to say which bar counts as the first, whether equal highs count, and what you do on the third bar. Those choices change the result.
Why a rule needs exact wording
A rule with a loose name cannot be tested. A test needs every part fixed: what counts as a candle in the pattern, when the signal fires, where the entry is, where the stop and target are.
In our method a signal that appears when a bar closes can first be acted on at the next bar’s open. Targets fill on touch, at the exact price. Those details are part of the rule, and a different choice is a different rule.
The futures angle
On futures, the same three candles look different on a 1-minute chart and a 15-minute chart, and a roll between contract months can put a gap inside a pattern that nobody could have traded. Our data is 1-minute bars, labelled by their open time, in America/New_York time.
If one of these rules has been catching your eye, write it as an exact sentence and look at it bar by bar. Replay it on real NQ data, free, in the Trade Lab.
Questions and answers
What is the 3 candle rule in trading?
There is no standard 3 candle rule. The phrase is used for three-bar patterns, for a rule that waits three candles before entering, and for three bars in a row making new highs or lows.
What are three white soldiers and three black crows?
Three white soldiers are three rising candles in a row, each closing higher than the one before. Three black crows are the same in reverse, three falling candles in a row.
Is the 3 candlestick rule reliable?
It depends on which rule is meant, and nobody can answer for a rule with no fixed wording. To find out, write the rule as exact steps and count what happened after it on past data.
How do I test a candlestick rule?
Write it so there is only one reading, run it on past data with costs, hold some months back, and read the trades. Our how-to page walks through the steps.