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Bullish and Bearish Three Line Strike Patterns Explained

The Three Line Strike pattern is one of the most powerful yet lesser-known candlestick formations in technical analysis. This rare pattern offers exceptional accuracy for predicting market reversals, making it a valuable addition to any trader's arsenal.

What is a Three Line Strike Pattern?​

The Three Line Strike is a four-candle reversal pattern that occurs in both bullish and bearish variations. Despite its name suggesting three candles, it actually consists of three consecutive candles in one direction followed by a powerful fourth candle that "strikes" in the opposite direction, engulfing all three previous candles.

What makes this pattern particularly noteworthy is its statistical performance. According to extensive backtesting, the Three Line Strike ranks among the most reliable candlestick patterns, with accuracy rates exceeding 65% in both bullish and bearish variations. In fact, historical analysis places the Bearish Three Line Strike at an impressive 84% accuracy rate and the Bullish Three Line Strike at 83% in certain market conditions, making them among the top-performing candlestick patterns.

Bullish Three Line Strike​

The Bullish Three Line Strike forms during a downtrend and signals a potential reversal to the upside. This pattern is characterized by:

  1. Three consecutive black/red candles forming in a downtrend
  2. Each candle closing lower than the previous one
  3. A fourth white/green candle that opens below the third candle's close
  4. The fourth candle closes above the first candle's open, completely engulfing all three previous candles

The psychology behind this pattern is fascinating. After three consecutive bearish candles, market sentiment appears overwhelmingly negative. However, the fourth candle represents a sudden and powerful shift in momentum as bulls take control, overwhelming all the previous bearish action in a single session.

Bearish Three Line Strike​

Conversely, the Bearish Three Line Strike forms during an uptrend and signals a potential reversal to the downside. This pattern consists of:

  1. Three consecutive white/green candles forming in an uptrend
  2. Each candle closing higher than the previous one
  3. A fourth black/red candle that opens above the third candle's close
  4. The fourth candle closes below the first candle's open, completely engulfing all three previous candles

Similar to its bullish counterpart, the Bearish Three Line Strike represents a dramatic shift in market psychology. After three consecutive bullish candles establish a strong uptrend, the fourth candle demonstrates a complete reversal as bears overwhelm all the previous bullish momentum.

How to Identify a Three Line Strike Pattern​

Correctly identifying Three Line Strike patterns requires attention to detail and an understanding of the specific criteria that define these formations. Let's examine the identification guidelines for both variations:

Identifying a Bullish Three Line Strike​

To identify a valid Bullish Three Line Strike pattern:

  1. Prior Trend: Look for a clear downtrend preceding the pattern
  2. First Three Candles: Identify three consecutive black/red candles, each closing lower than the previous
  3. Fourth Candle: Confirm a strong white/green candle that opens below the third candle's close
  4. Engulfing Action: Verify that the fourth candle closes above the open of the first candle
  5. Candle Size: The fourth candle should be notably large, demonstrating strong buying pressure

The most reliable Bullish Three Line Strike patterns form after a sustained downtrend when bearish momentum appears strongest. This counterintuitive aspect is what makes the pattern so powerful—it captures the precise moment when market sentiment shifts dramatically.

Identifying a Bearish Three Line Strike​

For a valid Bearish Three Line Strike pattern:

  1. Prior Trend: Confirm an established uptrend before the pattern
  2. First Three Candles: Look for three consecutive white/green candles, each closing higher than the previous
  3. Fourth Candle: Identify a strong black/red candle that opens above the third candle's close
  4. Engulfing Action: Ensure the fourth candle closes below the open of the first candle
  5. Candle Size: The fourth candle should be substantial, indicating significant selling pressure

The Bearish Three Line Strike is most reliable when it appears near resistance levels or after an extended uptrend when bullish exhaustion is likely. The pattern's dramatic reversal captures the moment when bulls capitulate and bears take control.

How to Trade the Three Line Strike Pattern​

Trading the Three Line Strike pattern effectively requires a strategic approach that considers entry timing, stop-loss placement, and profit targets. Here's a comprehensive guide for trading both variations:

Trading the Bullish Three Line Strike​

When trading the Bullish Three Line Strike:

  1. Entry Strategy: Enter a long position after confirming the pattern with additional signals:

    • Wait for a small consolidation after the fourth candle
    • Look for supporting technical indicators (RSI oversold, MACD crossover)
    • Consider volume confirmation (high volume on the fourth candle)

  2. Stop-Loss Placement: Place your stop-loss below the low of the fourth candle or below the low of the entire pattern, depending on your risk tolerance.

  3. Profit Targets: Set multiple profit targets:

    • First target: 1:1 risk-reward ratio
    • Second target: Previous resistance level
    • Final target: 2:1 or 3:1 risk-reward ratio

  4. Risk Management: Limit position size to 1-2% of your trading capital per trade to manage downside risk effectively.

The Bullish Three Line Strike performs exceptionally well in markets with strong underlying bullish sentiment that has been temporarily oversold. The pattern's success rate increases when formed near support levels or key moving averages.

Trading the Bearish Three Line Strike​

For the Bearish Three Line Strike:

  1. Entry Strategy: Enter a short position after pattern confirmation:

    • Wait for a small pullback after the fourth candle
    • Confirm with technical indicators (RSI overbought, bearish divergence)
    • Check for increased volume on the fourth candle

  2. Stop-Loss Placement: Set your stop-loss above the high of the fourth candle or above the high of the entire pattern.

  3. Profit Targets: Establish multiple exit points:

    • First target: 1:1 risk-reward ratio
    • Second target: Nearest support level
    • Final target: 2:1 or 3:1 risk-reward ratio

  4. Risk Management: As with all trading strategies, limit your exposure to 1-2% of capital per trade.

The Bearish Three Line Strike is particularly effective when formed near major resistance levels, psychological price points, or after extended rallies where momentum is waning.

Three Line Strike Pattern Statistics and Performance​

What makes the Three Line Strike pattern particularly valuable is its impressive statistical performance. Based on extensive historical analysis:

Bullish Three Line Strike Performance​

  • Accuracy Rate: Approximately 65% success rate in predicting reversals, with historical studies showing up to 83% accuracy in specific market conditions
  • Average Price Movement: Typically results in a 6-9% upward move in bull markets
  • Timeframe Effectiveness: Most reliable on daily and weekly charts
  • Market Conditions: Performs best during overall bull markets or during corrections within bull markets
  • Volume Impact: Below-average candle volume during pattern formation tends to produce better results in bull markets
  • Moving Average Relationship: Upward breakouts perform better when they occur above the 50-day moving average
  • Confirmation Method: In bull markets, patterns perform best when confirmed by a gap-up opening on the day after pattern completion

Bearish Three Line Strike Performance​

  • Accuracy Rate: Around 67% success rate in predicting downside reversals, with historical studies showing up to 84% accuracy in specific market conditions
  • Average Price Movement: Generally produces a 7-10% downward move in bear markets
  • Timeframe Effectiveness: Most effective on daily and weekly timeframes
  • Market Conditions: Performs optimally during bear markets or at major tops in bull markets
  • Trading Tactics: When the primary trend is upward and a bearish pattern forms with a downward breakout, the downward move is often short-lived (typically 3 days or less)
  • Yearly Position: Reversals occur most frequently when the breakout is within a third of the yearly low during bull markets

These statistics highlight why the Three Line Strike pattern ranks among the top candlestick formations for reliability and predictive power. However, like all technical patterns, it should be used in conjunction with other analysis methods rather than in isolation.

Advanced Statistical Insights​

Further statistical analysis reveals additional nuances that can help traders optimize their approach to Three Line Strike patterns:

Pattern Ranking​

In comprehensive studies of candlestick pattern effectiveness:

  • The Bearish Three Line Strike ranks #1 with a 67.38% performance rating
  • The Bullish Three Line Strike ranks #2 with a 65.23% performance rating
  • These rankings place them ahead of other well-known patterns like Three Black Crows (59.83%) and Evening Star (55.85%)

Volume Characteristics​

  • Bullish Pattern: Heavy breakout volume suggests better post-breakout performance
  • Bearish Pattern: Patterns in bull markets perform better with rising candle volume, while those in bear markets outperform on falling volume

Candle Height Impact​

  • Tall candles consistently outperform short candles in both pattern variations
  • For optimal performance measurement, calculate the pattern's height (highest high to lowest low) and divide by the breakout price
  • If the result exceeds the median height percentage, the pattern has higher probability of success

Common Mistakes When Trading Three Line Strike Patterns​

Even experienced traders can make errors when trading these patterns. Here are common pitfalls to avoid:

  1. Ignoring Market Context: Trading the pattern without considering the broader market environment and trend
  2. Premature Entry: Entering trades immediately after pattern formation without waiting for confirmation
  3. Improper Stop-Loss Placement: Setting stops too tight or too loose relative to the pattern's structure
  4. Neglecting Volume: Failing to verify pattern validity with corresponding volume analysis
  5. Overtrading: Taking every Three Line Strike pattern without filtering for quality setups
  6. Confirmation Bias: Seeing patterns where they don't exist due to eagerness to trade

By avoiding these mistakes and following a disciplined approach, traders can significantly improve their success rate with Three Line Strike patterns.

Combining Three Line Strike with Other Technical Tools​

The Three Line Strike pattern becomes even more powerful when combined with complementary technical analysis tools:

  1. Support and Resistance Levels: Patterns forming near key levels have higher probability of success
  2. Trend Lines: Patterns that break significant trend lines offer stronger signals
  3. Moving Averages: Patterns near key moving averages (50, 100, 200) provide additional confirmation
  4. Momentum Indicators: RSI, MACD, and Stochastic can confirm the momentum shift indicated by the pattern
  5. Volume Analysis: Strong volume on the fourth candle validates the pattern's significance
  6. Market Structure: Patterns that form at key market structure points (higher lows, lower highs) are more reliable

This multi-faceted approach creates a robust trading system that filters out lower-probability setups and focuses on high-quality trading opportunities.

FAQ​

Can you trade Three Line Strike patterns by themselves?​

No, Three Line Strike patterns should not be traded in isolation. While they offer strong reversal signals, they should be used in confluence with other technical analysis tools like support/resistance levels, trend analysis, and volume confirmation to increase probability of success.

Can you trade Three Line Strike patterns in any market?​

Yes, Three Line Strike patterns can be effectively traded across various markets including stocks, forex, commodities, and cryptocurrencies. The psychological principles behind the pattern apply universally to all markets where human emotion influences price action.

Can you trade Three Line Strike patterns in any timeframe?​

While Three Line Strike patterns can form on any timeframe, they tend to be most reliable on daily and weekly charts. Lower timeframes (1-hour, 4-hour) can produce valid signals but may have higher rates of false positives due to increased market noise.

Next Steps​