Long is the time when Candlestick patterns have been that handy for the traders who view the decoding of price action in the markets. Of course, there are hundreds of formations of candlesticks. One of the lesser-known—and perhaps one of the most effective—is the 3 Bar Play. A unique and easily interpretable pattern that gives out clear signals about market reversals and continuations of trends, it becomes a powerful tool for any trader’s arsenal.
The 3 Bar Play pattern—a simple workhorse strategy in Forex trading. In this article, we’ll demonstrate its profitability with real-life examples and explain how you can begin using it to unlock trading opportunities.
Trading can be viewed as a game of guessing more often than not, particularly when the market is volatile. For some traders, it is never really clear as to when to enter or leave a trade. The result is missed opportunities or losses. Finding good trading setups in real-time is important but not easy unless one has a defined strategy.
In fact, this pattern of 3 Bar Play gives an exact and predictable system for the location of trading opportunities. Though less known to most traders than some other forms, 3 Bar Play still helps in more confident market navigation. It is possible to capture market reversals and continuations by applying specific rules in 3 Bar Play.
In this article, we are going to break down the 3 Bar Play pattern, explain how to identify it, and then show you how to incorporate it into your trading strategy to squeeze out as much profitability as possible. You will learn how to use this pattern in conjunction with other technical indicators to help find more confluence into putting you into high-probability trades.
Knowing the 3 Bar Play Pattern
The 3 Bar Play pattern is one of the very basic and potent candlestick patterns that give a buy or sell signal, hinting towards a change in the market’s previous direction, either reversing or continuing. It is composed of three main candlesticks and can occur in bullish as well as bearish conditions of the market.
Elements of the 3 Bar Play
- First Candle – Lighting Candle:
- The first candle in the pattern is known as the “igniting candle.”
- Its size is more considerable compared to usual.
- This situation frequently occurs when a powerful directional movement in the market is realized.
- It’s crucial that the price action in that candle be different than the rest preceding it, indicating a change in the market’s attitude.
- Second Candle – the Pull-back Candle:
- This second candlestick is a small candle that retracts some of the move from the first candlestick.
- It is bearish in a bull setup, meaning it moves downwards.
- In a bear setup, it is bullish, meaning the candlestick is moving upwards.
- Usually, this retracement is viewed as a short stop and then the continuation in the same direction of the first candlestick.
- Third Candlestick – Confirmation Candle:
- The third candle is the most crucial because it forms a confirmation of the validity of the pattern.
- It reverses the direction of the first candle.
- It should close above (in a bullish setup) or below (in a bearish setup) the second candle.
- The breakout from the second candle now suggests that the trend is resuming, providing a clear signal to enter the trade.
How to Identify the 3 Bar Play Pattern
Three actions represent the pattern 3 Bar Play, which are:
- The Igniting Move:
- A huge candle must be much larger than the previous candles and should reflect massive market momentum.
- In this context, a large candle expresses that the markets have a decisive move in one direction.
- A Brief Pullback:
- The second candle should be much smaller—a retracement candle that moves in the opposite direction to the first one.
- It actually shows that profit-taking is done temporarily, or there is hesitation in the market before the continuation of the trend.
- The Breakout Confirmation:
- The third candle must close above the second candle, confirming the upward continuation of the original trend.
- This is a good entry point, either closing on the third candle or opening on the fourth.
Trading the 3 Bar Play Pattern
Now that we’ve covered the structure of the 3 Bar Play pattern, let’s cover how to trade it well.
Bullish 3 Bar Play Setup
The market is either in a downtrend or consolidation in a bullish 3 Bar Play. You would like to wait for an igniting bullish candle to form at the end of the downtrend.
Step 1: Identify the Igniting Candle
- Large bullish candle, much bigger than the candles before it, clearly visible as a standout candle in size, suggesting a reversal from the downtrend.
Step 2: Spot the Pullback Candle
- This second candle needs to be a low-bodied bearish candle.
- This represents the “pause” by the market before taking things in the other direction, or the next move up.
Step 3: Enter on Confirmation
- Once the third candle has closed above the second candle, confirm that the uptrend is in place.
- Now you can enter a long position, placing your stop loss below the low of the second candle.
Bearish 3 Bar Play Setup
In a bearish 3 Bar Play, the market remains in an uptrend or consolidation. You are trying to identify a candle that will signal the start of a bearish trend.
Step 1: Obtain the Igniting Candle
- Look for the largest bearish candle that is bigger than the previous candle, indicating the beginning of a new downward move.
Step 2: Identify the Pullback Candle
- The candle should be small and bullish, indicating the minor retracement in price action.
Step 3: Entry on Confirmation
- At the moment when the third candle closes below the second, a downtrend is confirmed.
- You should immediately enter a short trade, placing a stop-loss above the high of the second candle.
Applying Technical Indicators for Additional Confirmation
While the 3 Bar Play pattern on its own is quite good, combining it with other technical indicators will significantly improve your success chances. It also helps avoid overconfidence when entering a trade.
- RSI:
- RSI, in an overbought condition, in a bearish 3 Bar Play setup, verifies the concept of a rebound.
- Moving Averages:
- If the bullish 3 Bar Play setup occurs at the same time with a bullish crossover of moving averages, it adds a boost to the signal.
Real-Life Examples
Example 1: Bullish 3 Bar Play on EUR/USD
- Assume that the EUR/USD has been trending downward.
- You notice a big bullish ignition candle close to a strong support level.
- The second is a small bearish candle followed by a third bullish candle that closes above the wick of the second.
- This will be your entry position to go long and hit the next resistive level, with the stop set below the wick of the second one.
Example 2: Bearish 3 Bar Play on GBP/USD
- The GBP/USD is in an uptrend, but there is now a large bearish igniting candle forming near a key resistance level.
- The second candle is smaller bullish that closes below the third.
- Enter into short, placing the stop loss above the high of the second candle, and then look to take the next support level.
Conclusion
That is a versatile and effective trading strategy that can generate profits in market reversals as well as trend continuations. Using its simple rules along with technical indicators in other strategies increases the chances of success in markets. Today itself, add the 3 Bar Play to your trading plan and unlock new profit opportunities!
