Monthly line red three soldiers + daily line step back to the five-week moving average buy point

The Monthly Red Three Soldiers pattern signals a bullish reversal, confirmed by three strong green candles with rising volume, often followed by a pullback to the 25-day SMA on the daily chart for a high-probability long entry.

Jul 29, 2025 at 04:07 pm

Understanding the Monthly Line Red Three Soldiers Pattern

The Monthly Line Red Three Soldiers pattern is a bullish reversal formation observed in candlestick charting, typically appearing after a prolonged downtrend. This pattern consists of three consecutive long green (or white) candles on the monthly timeframe, each opening within the body of the previous candle and closing progressively higher. The significance of this pattern lies in its ability to signal strong institutional buying and a potential shift in market sentiment from bearish to bullish.

Each candle in the pattern should display minimal upper and lower wicks, indicating that buying pressure was dominant throughout the period. The first candle suggests that selling exhaustion has occurred. The second candle confirms renewed buyer interest, and the third candle establishes a new trend. Traders pay close attention to this setup because it often precedes extended upward movements, especially in the cryptocurrency market where sentiment shifts can trigger rapid price appreciation.

It's essential to confirm the pattern with volume analysis. A noticeable increase in trading volume during the formation of these three monthly candles strengthens the validity of the signal. Without volume confirmation, the pattern may be considered less reliable.

Interpreting the Daily Chart: Retracement to the 5-Week Moving Average

After identifying the Monthly Line Red Three Soldiers, the next critical step is analyzing the daily chart for a pullback. A healthy correction often follows strong upward moves, providing a second entry opportunity. The ideal scenario occurs when the price retraces to the 5-week moving average (MA) on the daily chart.

To locate the 5-week MA, switch to the daily timeframe and apply a 25-period simple moving average (since there are approximately 25 trading days in five weeks). This moving average acts as dynamic support during uptrends. When the price pulls back and touches or slightly dips below this MA before bouncing, it indicates that short-term weakness is being absorbed by buyers.

The retracement should not break below the 5-week MA by a large margin. A shallow pullback with decreasing volume suggests that bears are not in control. Conversely, a deep drop below the MA with high volume may invalidate the setup. Traders wait for bullish reversal candlesticks—such as hammer, bullish engulfing, or piercing line patterns—at the MA level to confirm demand.

Combining Monthly and Daily Signals for Entry

The confluence of the Monthly Red Three Soldiers and a daily pullback to the 5-week MA creates a high-probability buy setup. This multi-timeframe alignment filters out false signals and increases confidence in the trade.

To execute this strategy:

• Verify the Monthly Red Three Soldiers pattern is fully formed and confirmed with rising volume.
• Switch to the daily chart and plot the 25-period SMA.
• Wait for the price to decline toward the 25-SMA.
• Monitor for bullish candlestick reversal patterns near the moving average.
• Confirm with support from horizontal price levels or Fibonacci retracement zones (e.g., 50% or 61.8%).
• Enter a long position when the price closes above the high of the reversal candle.

Place a stop-loss just below the low of the reversal candle or slightly under the 25-SMA to manage risk. Position sizing should align with risk tolerance, typically risking no more than 1%–2% of the trading capital per trade.

Practical Example Using a Cryptocurrency Chart

Let’s apply this strategy to a real-world example using Bitcoin (BTC) on a trading platform like TradingView.

• Open the BTC/USDT monthly chart.
• Identify three consecutive green candles after a downtrend. Ensure each candle closes higher than the last and has strong bodies.
• Switch to the daily chart.
• Apply a 25-period SMA to the daily timeframe.
• Observe the price action: after the monthly pattern, BTC rises, then pulls back over several days.
• The price approaches the 25-SMA. Look for a bullish engulfing candle forming at this level.
• Volume on the engulfing candle should be higher than recent average, confirming buyer participation.
• Enter a long position at the close of the engulfing candle.
• Set stop-loss below the low of that candle.
• Use a trailing stop or resistance zones for partial profit-taking as the price rises.

This method leverages both macro and micro price action, increasing the edge in volatile crypto markets.

Common Pitfalls and Risk Management

Even with a strong pattern, traders can make mistakes. One common error is entering before the daily pullback completes. Premature entries often lead to stop-outs when the price continues to dip.

Another issue is ignoring market context. If the broader crypto market is under strong selling pressure—such as during regulatory crackdowns or macroeconomic shocks—the pattern may fail. Always assess Bitcoin dominance, overall market volume, and news events before acting.

False signals occur when the three soldiers appear but lack volume support. Similarly, a retracement to the 5-week MA without a reversal candle is not a valid trigger. Patience is crucial.

Risk management includes:

• Using stop-loss orders consistently.
• Avoiding over-leveraging, especially in futures trading.
• Diversifying across setups instead of concentrating on one signal.
• Reviewing past trades to identify behavioral patterns.

Frequently Asked Questions

What if the price bounces before reaching the 5-week moving average?

If the price reverses upward without touching the 25-SMA, the setup is incomplete. The absence of a pullback reduces the probability of a low-risk entry. Traders may consider this a missed opportunity and wait for the next valid confluence.

Can this strategy be applied to altcoins?

Yes, but with caution. Altcoins often lack consistent monthly volume and may exhibit erratic price behavior. The pattern is more reliable in large-cap cryptocurrencies like Ethereum (ETH) or BNB with established trading histories and liquidity.

How do I confirm volume on the monthly candles?

On most charting platforms, volume bars are displayed below the price chart. For the Red Three Soldiers, ensure each monthly candle has higher volume than the preceding months. Rising volume confirms participation and reduces the chance of a trap.

Is the 5-week MA the same as the 25-day SMA?

Yes, the 5-week moving average on the daily chart is equivalent to a 25-day simple moving average. This equivalence comes from five trading days per week, totaling 25 days over five weeks. Ensure the setting is on "simple" and not exponential for consistency.