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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

	crypto	forex	stock
pattern_name	bullish three line strike	bullish three line strike	bullish three line strike
pattern_category	bullish continuation	bullish continuation	bullish continuation
pattern_bars	4	4	4
required_trend	uptrend	uptrend	uptrend
traded_as	bullish continuation	bullish continuation	bullish continuation
stop_bar_type	low	low	low
entry_bar_type	high	high	high
risk_reward	1	5	5
timeframe	2015-2021	2010-2021	2000-2021
bar_period	daily	daily	daily
total_tickers	395	1351	6951
pattern_tickers	19	471	1015
patterns	44	2094	2629
trades	15	627	742
confirm_perc	0.34	0.3	0.28
wins	11	58	136
losses	4	569	606
win_perc	0.733	0.093	0.183
avg_win_bars	2.82	66.98	39.46
avg_loss_bars	0.0	10.84	11.88
cons_wins	2	2	2
cons_losses	1	6	4
edge	0.463	-0.445	0.095

	crypto	forex	stock
pattern_name	bullish three line strike	bullish three line strike	bullish three line strike
pattern_category	bullish continuation	bullish continuation	bullish continuation
pattern_bars	4	4	4
required_trend	uptrend	uptrend	uptrend
traded_as	bullish continuation	bullish continuation	bullish continuation
stop_bar_type	low	low	low
entry_bar_type	close	close	close
risk_reward	5	5	5
timeframe	2015-2021	2010-2021	2000-2021
bar_period	daily	daily	daily
total_tickers	395	1351	6951
pattern_tickers	19	471	1015
patterns	44	2115	2639
trades	44	2105	2487
confirm_perc	1.0	1.0	0.94
wins	11	296	525
losses	33	1809	1962
win_perc	0.25	0.141	0.211
avg_win_bars	2.45	4.11	2.39
avg_loss_bars	4.27	1.41	0.8
cons_wins	1	2	3
cons_losses	2	11	6
edge	0.5	-0.155	0.265

Bearish Reversal Backtest Results

	crypto	forex	stock
pattern_name	bullish three line strike	bullish three line strike	bullish three line strike
pattern_category	bullish continuation	bullish continuation	bullish continuation
pattern_bars	4	4	4
required_trend	uptrend	uptrend	uptrend
traded_as	bearish reversal	bearish reversal	bearish reversal
stop_bar_type	high	high	high
entry_bar_type	low	low	low
risk_reward	1	5	1
timeframe	2015-2021	2010-2021	2000-2021
bar_period	daily	daily	daily
total_tickers	395	1351	6951
pattern_tickers	19	471	1015
patterns	44	2055	2633
trades	29	1643	2116
confirm_perc	0.66	0.8	0.8
wins	14	237	1035
losses	15	1406	1081
win_perc	0.483	0.144	0.489
avg_win_bars	3.07	94.35	5.88
avg_loss_bars	6.53	28.56	7.09
cons_wins	2	3	5
cons_losses	2	11	4
edge	-0.037	-0.14	-0.021

	crypto	forex	stock
pattern_name	bullish three line strike	bullish three line strike	bullish three line strike
pattern_category	bullish continuation	bullish continuation	bullish continuation
pattern_bars	4	4	4
required_trend	uptrend	uptrend	uptrend
traded_as	bearish reversal	bearish reversal	bearish reversal
stop_bar_type	high	high	high
entry_bar_type	close	close	close
risk_reward	1	3	1
timeframe	2015-2021	2010-2021	2000-2021
bar_period	daily	daily	daily
total_tickers	395	1351	6951
pattern_tickers	19	471	1015
patterns	44	2074	2633
trades	43	2024	2406
confirm_perc	0.98	0.98	0.91
wins	22	512	1239
losses	21	1512	1167
win_perc	0.512	0.253	0.515
avg_win_bars	3.41	27.83	4.47
avg_loss_bars	4.43	13.92	5.54
cons_wins	2	5	6
cons_losses	2	9	4
edge	0.022	0.009	0.035

Mean Reversion Strategy Backtest Results

	crypto	forex	stock
pattern_name	bullish three line strike	bullish three line strike	bullish three line strike
pattern_category	bullish continuation	bullish continuation	bullish continuation
pattern_bars	4	4	4
required_trend	uptrend	uptrend	uptrend
traded_as	bearish mean reversion	bearish mean reversion	bearish mean reversion
stop_bar_type	atr	atr	atr
entry_bar_type	pattern_high	pattern_high	pattern_high
risk_reward	4	1	1
timeframe	2015-2021	2010-2021	2000-2021
bar_period	daily	daily	daily
total_tickers	395	1351	6951
pattern_tickers	19	471	1015
patterns	44	2118	2640
trades	11	461	552
confirm_perc	0.25	0.22	0.21
wins	1	340	339
losses	10	121	213
win_perc	0.091	0.738	0.614
avg_win_bars	36.0	1.74	1.48
avg_loss_bars	2.2	2.34	2.29
cons_wins	1	4	3
cons_losses	2	3	3
edge	-0.546	0.478	0.224

	crypto	forex	stock
pattern_name	bullish three line strike	bullish three line strike	bullish three line strike
pattern_category	bullish continuation	bullish continuation	bullish continuation
pattern_bars	4	4	4
required_trend	uptrend	uptrend	uptrend
traded_as	bullish mean reversion	bullish mean reversion	bullish mean reversion
stop_bar_type	atr	atr	atr
entry_bar_type	pattern_low	pattern_low	pattern_low
risk_reward	1	1	1
timeframe	2015-2021	2010-2021	2000-2021
bar_period	daily	daily	daily
total_tickers	395	1351	6951
pattern_tickers	19	471	1015
patterns	44	2115	2640
trades	21	1365	1688
confirm_perc	0.48	0.65	0.64
wins	14	888	1071
losses	7	477	617
win_perc	0.667	0.651	0.634
avg_win_bars	1.79	2.46	2.31
avg_loss_bars	2.29	3.81	3.15
cons_wins	2	7	5
cons_losses	1	3	4
edge	0.337	0.301	0.264

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.