How to Trade the 3-Bar Play Pattern

Apr 14, 2022

Level: Beginner

Reading time: 5 min

In the market, the 3-Bar Play pattern has been considered among the most famous and common chart patterns when it comes to price charts. Considering the high frequency of the particular pattern, most traders tend to implement it in their day-to-day trading. However, it is important to be familiar with certain tips, tricks, and techniques to trade this pattern. In this article, we will discuss all you need to know about this topic.

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What is the 3-Bar Play Candlestick Pattern?

This refers to a popular chart pattern identified by three successive candlesticks that can be displayed at three major market trends, i.e., downward, upward, and neutral. But sometimes, it comes with about four candles instead of the regular number in specific scenarios.

It can be a trend reversal or continuation pattern, depending on where it can be identified on the chart. Different types of a 3-Bar Play pattern are categorized as falling three (bearish) and rising three (bullish).

It is regarded as a secure and relatively convenient pattern useful for traders at any time. They make use of it as a trading technique in an attempt to discover limited price changes.

How to Identify the 3-Bar Play Pattern on a Chart?

The main advantage of using this pattern is its simplicity. Similar to the various other price patterns, this one can be seen in any possible case while trading and can equally provide either a bearish signal or a bullish one.

What Does YOLO Mean in Stock Trading and Investing?

Let’s look at how to identify a bullish 3-Bar Play pattern (and it’s well illustrated in the chart above):

It can be seen that the first bullish candle has a long body (above the regular-sized bar).
The second candle is a small bearish one. This down candlestick has an opening price at about the same level as the closing price of the first bullish candle.
The last bullish candle, called the trigger bar, has an opening price at the same level as the closing price of the previous candle.

The same applies to the bearish version, but if viewed in the opposite direction.

How to Use the 3-Bar Play Pattern While Trading?

So, we have learned how to define a pattern on a chart, but what does it tell us, and how to use it? The major purpose of this pattern is to serve as a means of identifying trend reversals. In most cases, this is observed in a flat market, where prices are consolidating, and the last candle suggests the market may go out of the flat.

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Consider how to use the 3-Bar Play pattern in trading:

Identify the pattern.
Use the Moving Average (MA) and other momentum indicators to confirm the signal.
Enter the trade when the third candle rises above the second middle candle.

However, it is essential not only to identify but also to confirm the pattern. Use momentum indicators that can help you confirm the pattern.

Advantages and Disadvantages

When it comes to trading the 3-Bar Play pattern, there are lots of benefits and drawbacks associated with it.

Advantages:

Easy identification: It is a relatively easy-to-understand and identifying pattern that can be seen on a price chart, making it suitable for all traders and beginners alike.
High probability: It has proven to be a reliable indicator of a possible trend reversal, increasing the possibility of a profitable trade.
Good for short-term trading: It is great for short-term trading strategies and intraday trading setups.

Disadvantages:

Fake signals: Similar to other technical tools, it is not flawless as it can give false signals, resulting in trade losses.
Not an independent technique: It should be implemented as a subsidiary of a more comprehensive trading method that contains technical analysis tools and trade and risk management.
Not for long positions: The pattern is suitable mainly for short-term trades.

The Bottom Line

In summary, the 3-Bar Play pattern is a unique tool used by traders as a means of detecting trend reversals. It is easy to understand and use, which ensures its versatility and accessibility. Despite this, traders must be aware of some disadvantages, including the possibility of false signals and the need for confirmation with additional indicators.

FAQs

While you might still have doubts, here are some of the most frequently asked questions about the topic that can help clarify your doubts.

What Characterizes the 3-Bar Play Pattern?

Below are the main conclusions that characterize trading on a 3-Bar Play pattern:

This pattern consists of three candles: first long bullish, second short bearish, and third bullish.
It gives traders a fairly accurate signal to enter or exit a trade.
The pattern is confirmed when the third candle rises/falls above or below the second candle (correct for a bullish or bearish trend).
It is ideal for intraday trading strategies and short-term trades.
To confirm the signal, this pattern is best used in conjunction with other indicators: MACD, moving averages, and Fibonacci support/resistance levels.

Is a 3-Bar Play Bullish or Bearish Candlestick Chart Pattern?

Based on its place on trading charts, it can be considered a bearish or bullish candlestick chart pattern.

How Can the 3-Bar Play Pattern and the 3-Bar Reversal Pattern Be Differentiated?

After looking at both terms, there are similarities between them, as they both have three candles and signal an entry-level. However, we can also notice the variation between the buildup and structure of these patterns.

The 3-Bar Play trading pattern consists of a 1st bullish candle, then a 2nd bearish candle, and finally, a 3rd bullish candle that closes just above the 2nd candle. By comparison, the 3-Bar Play reversal pattern contains 2 bearish down candles and a final bullish candle that closes above the first.