3 Candle Trading Strategy – A simple profitable forex strategy

Do you want to know more about candlestick trading strategies and the 3 candlestick pattern? Watch our latest video on 3 candle trading strategy to learn how to easily get profitable trading results with this simple profitable forex strategy.

3 Candle Trading Strategy Explained

One of the simplest strategies that traders will use is a 3-candle strategy. The basis of the strategy is that once 3 candles form in the same direction, momentum is starting to swing accordingly. For example, if we get 3 bullish candles, in theory the bullish momentum is starting to take over. Obviously, the exact opposite is true for bearish candles.

One of the most important things to keep in mind is that the higher the timeframe, the more likely there is validity to the signal. On the attached chart, I have a couple of areas that would have been interesting in the CHF/JPY weekly timeframe. The first yellow ellipse features 3 negative candles that have a bit of range to them, meaning that there was significant movement during the week. They were all 3 negative, and you can see led to a move much lower. The second ellipse is the exact opposite. We have 3 bullish candles with the recent range, which led to a move much higher.

There are a couple of different ways to play this strategy, but the most common is to place a stop loss at 50% of the range of the 3 candles. This gives the market the ability to pull back slightly, or a bounce, depending on the direction, and then continue the momentum. For example, in the first ellipse you can see that we did in fact bounced slightly, but then continue to fall. On the other hand, the second trade signal didn’t have much in the way of a pullback at all.

The target is essentially the same length of a move as the 3 candles used as a signal. 3 consecutive candles with a reasonable range are needed for the signal, as it shows that the market is starting to pick up or lose momentum. While not the most technical of strategies, this strategy does work over the longer-term. In this example, these trades would have lasted several weeks, but certainly you can see that the momentum carried the trader to profit eventually.