3 Line Strike Pattern: What Is It and How to Trade It?

Candlestick patterns are useful tools in technical analysis. They help traders understand market sentiment and predict potential price action. Among these, the three line strike pattern stands out for its ability to signal whether a trend will continue or possibly reverse.

What is the Three Line Strike Pattern?

The three line strike is a candlestick pattern made up of four candles. It can signal either a bullish continuation or a trend reversal, depending on the market context. This pattern reflects market momentum and gives traders clues about the direction of future price movements.

Structure of the Three Line Strike Pattern

The three line strike pattern forms in the following sequence:

1. First Three Candles: These candles must all move in the same direction (either all bullish or all bearish), forming a clear trend.  

2. Fourth Candle (The Strike): This candle moves in the opposite direction, fully engulfing the bodies of the prior three candles.

Types of Three Line Strike Patterns

1. Bullish Three Line Strike:  

• Appears in an uptrend.
• The fourth candle is bearish but does not signal a reversal; instead, it often precedes a continuation of the uptrend.

2. Bearish Three Line Strike:  

• Appears in a downtrend.
• The fourth candle is bullish, yet it may not indicate a trend change but rather a continuation of the downtrend.

How to Spot the Three Line Strike Pattern

1. Look for a Trend

First, look for a clear uptrend or downtrend. This pattern typically forms when the market is already moving in one direction.

2. Look at the First Three Candles

The first three candles should all move in the same direction, showing steady bullish or bearish momentum.

3. Observe the Fourth Candle (The Strike)

The fourth candle moves in the opposite direction of the first three and completely engulfs their bodies. This fourth strike is what makes the pattern stand out.

4. Check Market Context

Use other technical indicators or tools to confirm the pattern. This helps you determine whether it signals a trend reversal or a continuation pattern.

Market Sentiment Behind the Three Line Strike Candlestick Pattern

The three line strike pattern gives traders a deeper look into the emotional dynamics of the market:

• First Three Candles: These candles demonstrate strong momentum in one direction, signaling that traders are confident in the current trend.
• Fourth Candle: This candle moves in the opposite direction, often reflecting a temporary pullback or profit-taking. Despite this, it typically sets the stage for the trend to regain strength and continue in its original direction.

The line strike pattern shows that the market has enough momentum to absorb the opposing movement of the fourth candle and still maintain its trend. This is what makes it a reliable tool for spotting continuation patterns and understanding the underlying market sentiment.

How to Trade the Three Line Strike Pattern

The three line strike pattern can be a powerful tool for identifying trading opportunities. You need a solid plan to use it effectively.

1. Confirm the Pattern

Before you enter a trade, ensure all four candles meet the criteria of the three line strike. 

• For a bullish three line strike: The first three candles must be bullish, and the fourth must be a bearish candle that fully engulfs the bodies of the first three.
• For a bearish three line strike: The first three candles should be bearish, and the fourth must be a bullish engulfing candle.

2. Look at the Bigger Picture

Don’t rely on the pattern alone. Check if the three line strike aligns with the broader market trends or if it’s just a fluke.

3. Plan Your Entry

• For a bullish three line strike: Enter a long position once the price breaks above the high of the fourth candle.
• For a bearish three line strike: Enter a short position when the price drops below the low of the fourth candle.

4. Use Proper Risk Management

• Set a Stop-Loss: Place the stop-loss slightly below the fourth candle in bullish setups or above it in bearish setups.
• Maintain a Favorable Risk-Reward Ratio: Aim for at least 1:2, meaning your profit should be at least double your loss.
• Use Trailing Stops: Trailing stops allow you to lock in profits as the market moves in your favor. Adjust your stop-loss incrementally as the trade progresses, this ensures you protect gains while giving the trade room to breathe.

5. Monitor Price Action

Watch how the market behaves after you enter the trade:

• Make sure the price action follows the expected continuation or reversal based on the pattern.
• Be ready to exit the trade if the pattern fails or the market moves against you.

Examples of the Three Line Strike in Action

Bullish Three Line Strike Example

• Imagine the price of a stock is in an uptrend, forming three consecutive bullish candles with increasing highs.
• The fourth candle is a long bearish candle that fully engulfs the prior three bullish candles.
• After the fourth candle, the uptrend resumes as buyers step back in, pushing the price higher.

Bearish Three Line Strike Example

• A currency pair in a downtrend shows three consecutive bearish candles.
• The fourth candle is bullish, engulfing the prior three bearish candles.
• Despite the temporary rise, the downtrend continues as selling pressure returns.

When to Avoid the Three Line Strike Pattern

While the three line strike is a reliable pattern, it doesn’t always work perfectly. Avoid trading it in the following scenarios:  

1. Choppy Markets: In sideways or highly volatile markets, the pattern may give false signals.
2. Weak Trends: If the preceding trend lacks strength, the pattern’s reliability decreases.
3. Lack of Confirmation: Always combine the pattern with other indicators to confirm its validity.

Advantages of Trading the Three Line Strike

1. Clear Entry and Exit Points:  

The pattern provides well-defined entry points, reducing guesswork.  

2. Flexibility Across Markets:  

The line strike pattern works well in stocks, forex, and commodities.  

3. Indication of Market Strength:  

The fourth strike shows whether the market has the momentum to continue in the original direction.  

Disadvantages of the Three Line Strike

1. Not Always Reliable in Isolation:  

Market conditions can invalidate the pattern, especially if it occurs in weak trends or without volume confirmation.  

2. Requires Patience:  

Waiting for the pattern to complete and confirm can cause missed opportunities in fast-moving markets.  

FAQs

What Is the Success Rate of a Bullish 3 Line Strike Pattern?

The success rate of a bullish three line strike pattern is often seen as moderate to high, typically ranging from 60% to 70% when used under favorable conditions. However, its reliability depends on several factors, including the overall market environment, the timeframe being analyzed, and whether additional technical indicators are used to confirm the signal.

What Technical Indicators Can Be Used to Support the Bullish Three Line Pattern?

• Relative Strength Index (RSI): Use the RSI to check for oversold conditions or a bullish divergence, which can signal that upward momentum is building.
• Moving Averages: If the bullish three line strike pattern forms near a significant moving average acting as support, it adds strength to the likelihood of the trend continuing.
• Fibonacci Retracement: The fourth candle in the pattern often retraces a portion of the recent uptrend. Aligning the pattern with Fibonacci levels, such as 38.2% or 50%, can increase confidence in the trade setup.

How to Use the Bullish Three Line Strike Pattern in Automated Trading Systems?

In automated trading systems the bullish three-line strikes require the creation of patterns that recognize the pattern in the chart and the algorithm executes automatic trades after the pattern is recognized. In some cases, you need to create risk management plans. Of course, you need to test your system thoroughly before using live trades.

The Bottom Line

While not flawless, the three line strike pattern remains a powerful and flexible candlestick formation that can signal either a trend reversal or a continuation pattern. Understanding both the bullish three line strike and its bearish counterpart can help you identify critical turning points in the market and improve your trading success rate.