How to recognize the Three Line Strike Candlestick Pattern? Learn where you can find it and what steps you need to follow

Is the Three Line Strike Candlestick Pattern considered a continuation pattern or not? Our latest video answers this question, and it also teaches you the three main steps or rules, that you have to follow within this pattern.

Three Line Strike Candlestick Pattern – three main rules to follow

Hello, traders! So, today we are going to review one Candlestick pattern called, “Three Line Strike” strategy. And even though it’s called, Three Line Strike strategy it actually contains four candles, three of which are considered as strikes. So, we have three main steps or rules, that we have to follow within this pattern, in order to identify this pattern on a chart and then to plan our trades or actually to gain an overall picture of the trend since it’s not so easy or a basic pattern to identify, actually, to identify yes it is, but actually to trade and to plan your trading based on this pattern.

So, the first rule or step is that we are looking for an uptrend. This pattern does not work in a downtrend, so we need an uptrend. In this particular case, the Dollar/CAD four-hour chart, you can see that the price is creating lower lows and higher highs and we are clearly in an uptrend. So, the first step is checked. The second step is you’re looking for three consecutive green candles, in which every candle closes above the previous one. So, here is, if you can see the part of the chart that we highlighted, here you can see many, many consecutive green candles because it’s an uptrend, but here we have three green candles. Of course, since they’re green, price closes above the previous one every time. So, this is the second step. The third step is that, then we are looking for one big red candle, a long candle, which opens higher or at the same price as the previous one, but then dips down, closing below the first candle’s opening price. So, in the end, the fourth candle, or the big candle, must eat or swallow the bodies of previous three green candles. So, the length of this body must be bigger than all three previous candles.

So, how do we incorporate this trading pattern into our daily trading plan? And so now, this is the tricky part. So, historically the Three Line Strike strategy has been labeled as a continuation pattern. However, back-testing of this strategy and also some analysis of this pattern showed that, actually, in more than half cases, this pattern suggested that we have finished the uptrend and then we have started a reversal, and that reversal started after this big, long, red candle. In this particular case, I have intentionally prepared two different scenarios to show you. So, in this particular case, we are talking about the continuation pattern. in this case, you can see that after three bullish candles, we have a huge long, red, bearish candle. More or less, it’s also a bearish engulfing candle, which then continues to dip down and then you can see that we made a big correction in this particular case. We are talking 100 pips down move, after the big red candle. So, what happened here and did not happen there? What the recent analysis tells us, is that we must look at the follow-up candles, to look for the confirmation. In this particular case, you see that we have a huge green candle, that more or less matched the previous bearish candle. So, this meant that the price, then, continued to push higher since after we created this big red candle, immediately the bulls reacted and created a big green candle, a long green candle and then, the price continued to create, you see, higher highs. Here, in this case, look at the follow-up candle, this small, green candle. We could not react and immediately pushed the price back to the highs, but this was a very shallow reaction from the bulls and the price continued to dip down.

Third example. Again, we are talking about a reversal pattern here. So, Euro/Dollar one-hour chart, we have three bullish candles at the top. You can see that we are progressing higher, we go higher, and then, here we have a big, long, red candle. We close at the low, but then follow-up candle, red candle, a red candle and this means only one thing. This means that the price is going to push lower. So, in this particular strategy, it’s extremely important to look for the follow-up candles after the big red candle, and then make your trading plan. Once this happens, the uptrend, the three consecutive green candles followed by a long red candle, you know one thing: it’s either they’re going to continue to push higher or we’re going to break down lower, but you’re not going to see sideways moves. Again, look for the follow-up and create your trading plan according to the follow-up candles.