Bullish Three Line Strike Candlestick Pattern

The bullish three line strike is a Japanese candlestick pattern that makes $46.3 and $9.50 in the crypto and stock markets and loses $44.50 in the forex markets on average per $100 risked.

But what if I told you that there’s a better way to trade this pattern? 

Would you be interested?

Keep reading if you want to learn how to trade the bullish three-line strike candlestick pattern in a data-driven way.

What Is a Bullish Three-Line Strike Candlestick Pattern?

The bullish three-line strike candlestick pattern is thought of as a continuation pattern. The pattern is supposed to provide a potential opportunity for traders to enter the markets with a long position at a better price, which is true in the crypto and stock markets.

 Let’s take a minute and learn how to identify this continuation pattern.

How to Identify Bullish Three Line Strike Candlestick Pattern

Traders can quickly identify the pattern due to its ladder shape. The following are the requirements for a valid bullish three line strike pattern: 

  • The first three consecutive bullish candles should close higher than the previous candles close.
  • The first three candles should be similar in length.  
  • The fourth and last candle should open higher than the third candle’s closing price.
  • The fourth bearish candlestick should close lower than the first candle’s opening price.
  • The pattern must occur during an uptrend.

The above Amgen (AMGN) daily price chart for June 13th13th, 2018, shows the pattern in action. The bullish three-line strike pattern consists of three bullish candles in the direction of the trend followed by a bearish candle in the counter-trend direction engulfing the previous three candles.

We see the opening price of the first three bullish candlesticks is higher than its previous candle.

The fourth candle on the price chart shows significant bear action and reverses all of the gains from the first three bullish candlesticks completing the pattern.

Now that you know how to identify this pattern in your candlestick charts let’s learn how to best trade the bullish three-line strike.

How to Trade the Bullish Three Line Strike Candlestick Pattern

Traders should trade the bullish three-line strike candlestick pattern as intended in the stock market and use a bullish mean reversion strategy in all markets. Both of these setups are relatively similar.

But before we discuss how to trade this mean-reverting pattern, let’s understand how most traders traditionally trade this Japanese candlestick pattern.

Bullish Three Line Strike Continuation Trade Setup

The pattern occurred during an uptrend on Brookfield Asset Management’s (BAM) daily price chart on June 17th17th, 2021. The first three consecutive bullish candles opened higher than the previous candles. And the fourth bearish candle opened higher than the third candle’s close and closed lower than the first candle’s open, completing the pattern.

Traders traditionally trade the bullish three-line strike candlestick patterns by entering the market with a long position once the price breaks above the fourth candle’s high. The position is secured with a stop loss below the fourth candle’s low.

This strategy is not the optimal setup for this continuation pattern. It’s better to enter earlier at the break of the fourth candle’s close.

This is very similar to the mean reversion strategy. 

Let’s cover that now.

Bullish Three Line Strike Bullish Mean Reversion Trade Setup

The above daily price chart of Mongo DB (MDB) shows the bullish three line strike occurring on December 23rd, 2020.

The bullish mean reversion strategy enters on reclaim of the pattern low. In other words, savvy traders wait for the lowest point of the pattern to break, which is the fourth bar’s low of $369.07, and enter when the price crosses above the low with a stop loss of one average true range (ATR). 

In other words, the only difference between the two setups is that the continuation strategy enters in on a break of the close. In contrast, the mean reversion strategy enters on a bullish break of the pattern low.

Does the Bullish Three-Line Strike Candlestick Pattern Work? (Backtest Results)

Using the following rules, I backtested the bullish three-line strike candlestick pattern on the daily timeframe in the crypto, forex, and stock markets:

  • A close above the 50-day SMA constitutes an uptrend.
  • I tested risk-reward ranges from 1 to 5. 
  • The optimal risk-reward ratio is selected using profit per bar.
  • Entry and exits are discussed in the how-to trade section above.
  • Confirmation must occur within three days of the pattern signal.

Bullish Continuation Backtest Results

cryptoforexstock
pattern_namebullish three line strikebullish three line strikebullish three line strike
pattern_categorybullish continuationbullish continuationbullish continuation
pattern_bars444
required_trenduptrenduptrenduptrend
traded_asbullish continuationbullish continuationbullish continuation
stop_bar_typelowlowlow
entry_bar_typehighhighhigh
risk_reward155
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516951
pattern_tickers194711015
patterns4420942629
trades15627742
confirm_perc0.340.30.28
wins1158136
losses4569606
win_perc0.7330.0930.183
avg_win_bars2.8266.9839.46
avg_loss_bars0.010.8411.88
cons_wins222
cons_losses164
edge0.463-0.4450.095
cryptoforexstock
pattern_namebullish three line strikebullish three line strikebullish three line strike
pattern_categorybullish continuationbullish continuationbullish continuation
pattern_bars444
required_trenduptrenduptrenduptrend
traded_asbullish continuationbullish continuationbullish continuation
stop_bar_typelowlowlow
entry_bar_typeclosecloseclose
risk_reward555
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516951
pattern_tickers194711015
patterns4421152639
trades4421052487
confirm_perc1.01.00.94
wins11296525
losses3318091962
win_perc0.250.1410.211
avg_win_bars2.454.112.39
avg_loss_bars4.271.410.8
cons_wins123
cons_losses2116
edge0.5-0.1550.265

Bearish Reversal Backtest Results

cryptoforexstock
pattern_namebullish three line strikebullish three line strikebullish three line strike
pattern_categorybullish continuationbullish continuationbullish continuation
pattern_bars444
required_trenduptrenduptrenduptrend
traded_asbearish reversalbearish reversalbearish reversal
stop_bar_typehighhighhigh
entry_bar_typelowlowlow
risk_reward151
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516951
pattern_tickers194711015
patterns4420552633
trades2916432116
confirm_perc0.660.80.8
wins142371035
losses1514061081
win_perc0.4830.1440.489
avg_win_bars3.0794.355.88
avg_loss_bars6.5328.567.09
cons_wins235
cons_losses2114
edge-0.037-0.14-0.021
cryptoforexstock
pattern_namebullish three line strikebullish three line strikebullish three line strike
pattern_categorybullish continuationbullish continuationbullish continuation
pattern_bars444
required_trenduptrenduptrenduptrend
traded_asbearish reversalbearish reversalbearish reversal
stop_bar_typehighhighhigh
entry_bar_typeclosecloseclose
risk_reward131
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516951
pattern_tickers194711015
patterns4420742633
trades4320242406
confirm_perc0.980.980.91
wins225121239
losses2115121167
win_perc0.5120.2530.515
avg_win_bars3.4127.834.47
avg_loss_bars4.4313.925.54
cons_wins256
cons_losses294
edge0.0220.0090.035

Mean Reversion Strategy Backtest Results

cryptoforexstock
pattern_namebullish three line strikebullish three line strikebullish three line strike
pattern_categorybullish continuationbullish continuationbullish continuation
pattern_bars444
required_trenduptrenduptrenduptrend
traded_asbearish mean reversionbearish mean reversionbearish mean reversion
stop_bar_typeatratratr
entry_bar_typepattern_highpattern_highpattern_high
risk_reward411
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516951
pattern_tickers194711015
patterns4421182640
trades11461552
confirm_perc0.250.220.21
wins1340339
losses10121213
win_perc0.0910.7380.614
avg_win_bars36.01.741.48
avg_loss_bars2.22.342.29
cons_wins143
cons_losses233
edge-0.5460.4780.224
cryptoforexstock
pattern_namebullish three line strikebullish three line strikebullish three line strike
pattern_categorybullish continuationbullish continuationbullish continuation
pattern_bars444
required_trenduptrenduptrenduptrend
traded_asbullish mean reversionbullish mean reversionbullish mean reversion
stop_bar_typeatratratr
entry_bar_typepattern_lowpattern_lowpattern_low
risk_reward111
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516951
pattern_tickers194711015
patterns4421152640
trades2113651688
confirm_perc0.480.650.64
wins148881071
losses7477617
win_perc0.6670.6510.634
avg_win_bars1.792.462.31
avg_loss_bars2.293.813.15
cons_wins275
cons_losses134
edge0.3370.3010.264

We can see that such a drop on the fourth day alerts us of incoming volatility; however, as in most instances, the trend is your friend, and the data tell us to go bullish.

The Bottom Line

As always, traders should be wary of traditional trading methods. After all, most traders lose money. In the case of the bullish three line strike, conventional wisdom, at least in the stock market, holds.

However, data-driven traders know that while we can use this pattern as a continuation in the stock market, this pattern tested positively in all markets as a bullish mean reversion trade.

Leave a Comment