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Trade with 3 Bar Play Candlestick Pattern

The 3-Bar Play is a 3-candlestick trend continuation candlestick pattern. It predicts that the market will stay in the prior trend. The three successive candlesticks make up the classic chart pattern known as the “3 bar play”. They can occur in a market uptrend, downturn, or neutral trend. Technically, even though the pattern is referred to as a “3 bar play pattern,” some forms use four candles instead of only three.

Furthermore, depending on where it appears on the chart, the 3-bar Play can either be a trend continuation or a trend reversal pattern. The rising three (bullish) and the falling three (bearish) are the two most common forms of the 3 bar play patterns (bearish).

Nevertheless, day traders and scalpers frequently use it since it is a dependable and relatively simple-to-spot chart pattern. The typical trading technique for short-term price movements using this chart pattern is to seek to close the trade at the level of the nearest profit targets. As a result of its ability to help traders locate profitable transactions, this pattern is often used in the stock market.

Types of 3-bar play candlestick pattern

Based on trend direction and candlesticks, this candlestick pattern has two different forms.

  • Bearish 3-bar play candlestick pattern
  • Bullish 3-bar play candlestick pattern

Bullish 3-bar Play

Rising/bullish 3-bar play candlestick patterns develop throughout the bullish trend. It consists of a minor pullback candlestick and two large bullish candlesticks. Within the other two candlesticks is the slight pullback candlestick form. It demonstrates that the market’s bullish trend will persist.

Bullish 3 bar play

 

Bearish 3-bar Play

During the bearish trend, a falling/bearish 3-bar play pattern develops. It consists of a minor pullback candlestick and two large bearish candlesticks. It indicates that the market’s bearish trend will continue.

Bearish 3 bar play

Rules to discover 3-Bar play candlestick pattern if it is bullish or bearish

Using these three primary principles, you may filter the best patterns on the chart.

  • The body-to-wick proportion in the first and second candlesticks should be at least 60%. It should be the same colour. Both candlesticks should be red for bearish trends and green for bullish ones.
  • The inside candlestick in large candlesticks represents a price reversal. The inside candlestick of the giant candlesticks will be considerably smaller than that of the smaller candlesticks.
  • The 3-bar play pattern must be established at a critical level.

Trading strategy for 3-bar plays candlestick patterns

The trading technique includes the breakout, retreat, and continuation price patterns. We will trade upon a decline and hold the position open until the trend resumes.

3 bar patterns

Put in a sell-stop order

A bearish candlestick that emerges at significant critical levels is called a breakout candlestick. Price will retrace into a smaller candlestick following a breakout candlestick. The price of a small candlestick is the minimum below which a trader can open a sell order. The order will be completed automatically if the pricing trend continues. Until the trend reverses and after a 3-bar play pattern, the trade will remain open with candlestick confirmation. If there is a third bearish candlestick, exit the trade.

Put in a Buy-Stop order

A crucial solid point will be crossed by a big bullish candlestick, signalling a minor decline in the price. Open a purchase order after that at the little candlestick’s peak. A bullish or huge body should not appear on the third candlestick. If it occurs, cancel the order. Close the order and search for another chance if the third candlestick does not meet the criteria for 3-bar Play or has a bearish body.

What do traders learn from the 3-bar play pattern?

Traders will become successful traders if they can predict the market maker’s actions from behind the chart using price action. Because decision-making is crucial, trading losses are more likely to occur if judgments are made without a reasonable justification.

However, making selections based on an analysis of the trader’s actions off the chart will reduce the risk of losing money. Many elements are used in trading to boost the chance of success. First, let’s examine the structure. When a critical level is reached, the first meaningful bullish candlestick forms, signalling that buyers are in total control and have overcome a substantial significant obstacle set by sellers.

Retail traders will now attempt to sell from the resistance level following the breakthrough, and the price will provide a little retreat to indicate that the price is declining. So now, there will be more retail sellers on the market.

In actuality, though, this was a market-maker trap designed to draw in additional traders and raise volatility. Once the market makers return, a large bullish candlestick will emerge, signalling that they are in a bullish trend and that the subsequent trend will likewise be bullish.

Thus, trading with a positive trend will also result in gains; nevertheless, trading like a retail trader would result in losses most of the time. Conversely, a bearish pattern will develop when market makers support the negative trend.

Example of 3-bar play candlestick pattern 

The 3-bar play pattern often signals a shift in the market’s trend. For example, price consolidation is expected in ranging markets and the third or fourth candle signals that the market is likely to break out of the range.

The 3-bar play pattern can be used to take a long or short position, as was previously described. A trader often opens a position when the 3-bar play pattern occurs, with a stop loss placed below the low point of the first candle after the third candle climbs above the second. This chart design has it as its central premise.

Having stated that, you must be able to recognize and validate the pattern.

Therefore, we will demonstrate the two configurations of the 3 bar play pattern below, along with momentum indicators that may aid in pattern confirmation.

Rising Three Bullish Bar Play Pattern

The bullish variant of the rising 3-bar play pattern indicates a buying entry position. Usually, it might show up after a downtrend or in the middle of an ongoing bullish rally. For instance, the rising 3-bar play pattern, which involves the appearance of three candlesticks that suggest entering a long position, happens near the end of a downtrend.

graph

As long as it rises over the closing price of the second candle, the entry level would be at the starting price of the third candle. The take-profit target should be set at the last price high of the prior downtrend, with a stop loss at the first candlestick’s lowest level. 

A moving average indicator was then added to support the trend reversal. In this instance, match the data for short-term periods using the 5 & 8 bars. You’ll notice that the crossing happens precisely when the third candle rises over the second one.

Falling Three Bearish Bar Play Pattern

Although the structure is different, trading the falling 3-bar play pattern is the same as trading the rising 3-bullish pattern. As a result, you must search for a long bearish candle, a short bullish candle, and a third bearish candle that is lower than the first candle. Once more, we’d like to demonstrate the pattern’s appearance on a trading chart and the instruments you should use to verify it. To verify the pattern in the example below, we utilized two moving averages—5 and 8 bars.

graphs

A selling signal is generated when the MA crosses below the second candlestick, and the third candle falls below it. This time, the three bars play patterns during a downward trend, which predicts the continuance of the trend, as you can see in the USD/JPY 15-minute chart.

To establish a take-profit objective, we also applied Fibonacci retracement support and resistance levels of the prior price swing. The 50% retracement line would be the next profit objective after the third candlestick crosses below the second candle.

Pros and Cons of the 3-Bar Play Pattern

The pros and cons of trading the 3 bar play pattern are as follows:

Pros

  • Simple to recognize
  • This chart pattern is ideal for day trading and popular in intraday periods.
  • It provides a good indicator for short-term trading tactics.

Cons

  • Primarily appropriate for day trading
  • Occasionally gives out false signals

 

Saman Ali

Saman Ali is a Professional Financial Researcher, Quantitative Analyst and an Experienced Writer for more than 5 years. Saman’s main passion is for Cryptocurrencies, Stocks, Forex and Blockchain Technology. She holds an MBA in Finance and has specializations in producing high quality content about Cryptocurrencies, FX, Broker’s review, Price Predictions, Fundamental & Technical Analysis, and Educational Content.

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