How to Trade 3 Bar Play Candlestick Pattern

Answer this quick! Would you love to learn how to trade the 3 bar play candlestick pattern?

Yes! Not sure. Ermm.. no.

I’ll pretend your answer is one of the first two since you’re still here with me. Lol.

Alright, I’ll be showing you what the 3 bar continuation pattern is. And why it’s gradually gaining popularity even in the crypto market.

What you’ll learn about this inside bar play will definitely be worth it. So stick around till we get to the best part.

Remember, this guide builds on key elements hence every section is important. No one says you have to complete it in the next 20 minutes, so take your time.

With that in mind, let’s dive into how to trade the three-bar play candlestick pattern.

What is a 3 Bar Play?

A 3 bar play in technical analysis is a triple candlestick pattern.

This pattern consists of a large momentum candle, followed by a small candle, and another large momentum candle.

A more professional naming for each of the candles in this formation is:

  • Wide-range igniting bar (the first candle).
  • Narrow range resting or consolidating bar (the second candle).
  • Entry trigger or continuation bar (the third candle).

An igniting bar means it’s the first momentum candle out of a level.

Price is not exhausted, hence it has enough energy to rally or decline depending on the trend.

3 Bar Play Trading Rules

Here are some 3 bar play trading rules and concepts you need to understand.

1. Retracement Level of the Resting Bar:

In an uptrend, the resting bar’s real body is often not more than 50% away from the igniting candle’s high.

Whereas in a downtrend, it needs to be less than a 50% correction from the lows of the igniting candle.

In both cases, we may not really pay close attention to the length of its wicks.

But the smaller the resting candle, the better.

So take note!

2. Color of the Resting Bar:

The resting bar often has a color that differs from the first and last candle. Note that the color of all three candles can be the same.

Therefore, in an uptrend, you’ll have a large green igniting candle, a small red resting candle, and another large green continuation candle.

The highs of the first two candles should be the same. Ideally, let the close of the second candle be within the first candle (that’s if both colors are green.)

3 bar play trading in uptrend

So, what would you expect to see in a downtrend?

Think about it!

Three bar play downtrend

A downtrend will have a large red igniting candle followed by a small green resting candle, and then a large red continuation candle. All candles can also be of the same color.

The lows of the first two candles should be ‘relatively’ equal.

Read Also: How to Trade Abandoned Baby Candlestick Pattern

What does all this jargon mean?

It means a 3 bar play is a continuation pattern.

As such, when you spot it in an uptrend, prices are more likely to keep rallying.

The reverse is the case in a downtrend. There could be a further decline in prices.

Do you get the concept?

Ok. Let’s proceed.

Why You Should Trade the 3 Bar Trade

Here are some of the best reasons why you should trade the 3 bar play

1. Less Clumsy Charts:

Have you ever found it hard to spot key levels on a friend’s chart because it held too much information?

I know I have.

Such charts often have three or more indicators and lines running in all directions.

Now if you analyze this way, it just sends out too much data. You don’t need so much information to make an entry.

Moreover, Indicators may counter price action and vice versa. And several lines could make you squint to find what’s really important and maybe miss out entirely on good entries.

Here’s what I mean.

A three-bar play is as simple as it can be.

You don’t need to draw several lines on a digital currency’s chart.

All you have to do is pay attention to price’s reaction to a key level and then make your entries.

2. One More Reliable Trading Strategy:

Trading is all about testing different strategies.

This test will consume your time and even money. It’ll also play with your emotions.

For these reasons, it’s better to find a pattern that works to a high degree of accuracy. Who knows if it’ll replace one of the strategies you employ currently.

Now, the goal is to trade fewer strategies based on how reliable they are.

If you’re a pattern or price action trader, this strategy is for you.

It means more productive work done in less time for the best results consistently.

Does 3 Bar Play Work?

Yes, a 3 bar play works.

The pattern’s main focus is price and volume, two of the most important elements on your chart.

But like all candlestick patterns, there’s no 100% guarantee that the trend will continue after you’ve spotted this pattern.

Which is why we have stop losses in the first place!

The beauty of this pattern is that three candles combine to form a single setup. And that makes it one of the most powerful candlestick patterns.

That being said, it’s definitely worth learning how to trade the 3 bar play.

You’ll be leveraging on its power to take trades that have a high chance of playing out in the expected direction.

On the other hand, patience is key when it comes to this formation.

That’s because you have to wait for the creation of the third candle before making your entry.

The wait, however, is completely worth it.

How to Trade 3 Bar Play Candlestick Pattern

Follow these easy steps on how to trade the 3 bar play candlestick pattern.

  • Spot the trend.
  • Look for an Igniting bar.
  • Look for a correction into the igniting bar.
  • Make an entry.
  • Use multiple timeframe analysis.

Let’s go through these steps that’ll enable you long and short with this simple trading strategy.

1. Spot the Trend:

You’re looking for a continuation candlestick pattern. Hence, you need to know what the pattern will be continuing.

Start by identifying the existing trend in the timeframe of your choice.

It’s more advisable to spot the trend from a higher timeframe such as hourly, daily, or weekly. And then trade in the direction of that trend.

With that being said, your uptrend can easily be spotted by drawing a trendline at the lows of the candles.

But if you’ve got a keen eye, simply spot the higher highs and higher lows formation. And then work your way up from there.

A downtrend is defined by lower highs and lower lows. It can be mapped out with a trendline drawn at the highs of the candles.

Here’s a Bitcoin/USDT 4-hour chart indicating a downtrend. This trend hints you should be looking for an igniting candle that breaches support.

Igniting bar in downtrend

Another way to do it is go to a higher time frame such as the weekly or daily. And then map out the horizontal support and resistance levels.

You can then navigate to a lower timeframe to watch out for a bullish or bearish 3-bar play formation based on the major trend.

Here’s a Bitcoin/USDT 3-day chart with key levels drawn out.

There’s a breach below the major support line, hence price could tank further. You already know which side to trade from thanks to this knowledge.

Key levels on chart

2. Look for an Igniting Bar:

You now know the existing trend from a timeframe of your choice. Correct?

Then go ahead and confirm if price has breached a key level. That’s because price is more likely to reverse or continue its trend at a key level.

This level is your support and resistance on moving averages, trendlines, chart patterns, etc.

Here, what you’re out to find is an Igniting bar. And that is the first powerful move from a key level.

You don’t want to long or short a crypto asset that has exhausted its bullish or bearish steam.

And that exhaustion comes with the more candles it has used to rally or decline.

So pay attention to the first candle over resistance or below support.

For instance, if price is in a downtrend, look out for the first momentum candle that breaches support.

Is it a large red candle?

If yes, it meets one of the criteria for a three-bar play.

how to trade the 3 bar play candlestick pattern

It’s worth noting that the breached zone could be a gap or breakaway gap. We could have a gap up or down opening.

The gap becomes a strong level of support in an uptrend. In contrast, it’s strong resistance in a downtrend.

4. Look for a Resting Bar:

The next thing you need to do is find a resting bar.

You may have to go to a lower timeframe to spot the bar.

Ask yourself, ‘is there a minor correction into the igniting candle?’

If there is, then that’s a good thing.

Remember this correction needs to be around 50% or less from the igniting candle’s high or low.

In an uptrend:

  • We don’t need a correction candle whose size is extremely large since it hints a good portion of the buying pressure has been absorbed.
  • Neither do we want a correction that closes near the igniting bar’s lows.
  • What you want is a spinning top that makes the entire formation pass as a bearish harami.

In a downtrend:

  • The correction into the igniting bar should be near its lows.
  • A large resting bar could pass for a piercing pattern, which is not what we want. The large candle hints buyers are stepping into the market.

Check out the Bitcoin/USDT 15-minute chart below.

Price consolidated before breaching support. On a higher timeframe such as H1 or H4, the consolidation could pass for a single resting bar.

Resting bar in three bar play pattern

5. Make an Entry:

Let’s assume the trend is up.

The last green candle that breaches the highs of the igniting and resting candles is your confirmation to go long.

Simply place a buy-stop order at these highs so you’re automatically filled.

Read Also: Best Way to Trade Multiple Timeframes Alignment in Crypto

Now a conservative trader may want to take a position after the close of that third candle. The reason lies in the potential for a false break to occur thereby leaving you with overpriced coins.

Nonetheless, if price gapped up before the first candle was formed, strong support was created.

So, do you understand what it takes to find a three-bar play in an uptrend?

If you do, take a moment and envision how you’ll spot this same pattern in a downtrend.

Check this out once you’re done.

A 3 bar play indicator can be spotted in a downtrend by noting the following:

  • Find the first red momentum candle or igniting bar that breaches support. It could be horizontal or diagonal support.
  • Look out for a correction into that red momentum candle. This correction should be a small green candle whose close is near or at the close of the red candle.
  • Finally, wait until the low of both candles is breached by a large momentum red candle.
  • You can then place a sell-stop order at the lows of the first two candles.

And lest I forget, place your stop loss below or above the resting bar depending on whether you’re long or short.

5. Use Multiple Timeframe Analysis:

It’s important to emphasize the use of multiple timeframe analysis in this strategy.

This involves checking timeframes that are slightly above the one you use for entries.

The higher timeframe will be used to outline key levels and confirm if there’s an igniting bar.

You can use a factor of 4 or 6 to determine which is the ideal timeframe to use.

All you have to do is multiply the current timeframe by either 4 or 6. The result gives you your ideal higher timeframe.

How does it relate to this pattern? Read on to find out!

Say I’m trying to spot this pattern as a scalper.

I’d lookout for the igniting candle’s breach of support or resistance on the M30 or H1 timeframe.

And then use the M5 or M15 timeframe to check for the resting and continuation bars. (Note that 5 * 6 is 30 which tells me my higher timeframe.)

A swing trader may have to use H4 or D1 as his or her higher timeframe. While a close eye can be kept on the M30 and H1 timeframe for the 3-bar candles.

3 Bar Play Examples

Here are some 3 bar play examples.

These examples are crawled from lower and higher timeframes.

This means you can implement this pattern as a scalper, day trader, swing trader, or even investor.

Sounds great right?

Carefully study the charts below and see what insight you can gain from them.

Example 1:

This is a Bitcoin/USDT 2-week chart. It shows how the 3 bar play hinted at a continuation of the downtrend.

Note that you may not always get the ideal form of this pattern. And that is large momentum candles at the side.

Hence, certain variations can work, as in this example.

how to trade the 3 bar play candlestick pattern

In the example above, all rules of the 3 bar play formation have been met.

There’s the igniting bar, resting bar, and continuation candle.

And given that this is a downtrend, the expectation is more downward movement.

Notice that if you’d placed a stop at the high of the resting bar, it would’ve been a large margin. And that could lower the trade’s reward.

Nonetheless, you could’ve easily used a lower timeframe to choose an ideal candle to place your stop.

Now a trade of this nature would’ve been ideal for a short term looking to hold for long.

Price devalued from an entry price of $45,000 to $33,000 two weeks later. Even if you’d not held that long, you’ll still be in profit.

Example 2:

This is a Bitcoin/USDT daily chart. There’s a three bar play formation.

An entry made using this signal would’ve left you in profit.

That’s because price declined from about $29,000 to $26,000. And that’s a whopping $3,000 difference.

Therefore, low or moderate leverage used on futures would’ve given you good profit.

The trade would’ve been closed using lower timeframes since waiting for the close of the daily would’ve significantly wiped the gains. That’s due to the long legged doji candle.

On, the other hand, you could’ve also protected your open profit with a stop.

Three bar play in downtrend

How to Play 4 Bars Candlestick Patterns

It’s worth mentioning that there are also 4 bar play candles.

The same logic applies to this pattern even though you’ll be dealing with one extra candle.

But if you understand how the 3 bar play works and how to trade it, implementing the four-bar play rules will be easy.

Do a quick rundown of this pattern with me.

  • A four-bar play has four candlesticks
  • The first candle is a large momentum candle or a large igniting bar.
  • The second and third candles are low-volume candles. These are two resting bars.
  • The fourth candle is a large momentum candle. It is a continuation bar.

Now the first and fourth candles of this pattern are high momentum bars of the same color.

In contrast, the resting bars either have a color that differs from the first/last candle or a similar color.

Don’t get confused!

I mean the middle candles can be red and green, red and red, or green and green.

Check out the images below for 4 bar plays in an uptrend and downtrend.

What do you notice?

In an uptrend:

Four bar play in uptrend
  • Second candle is red in color, which differs from the first candle’s color.
  • The third candle is green, which differs from the second candle.
  • The resting bars have higher lows into resistance. This hints buyers’ willingness to pay more for the same coin or asset.

In a downtrend:

Four bar play in downtrend
  • The second candle (first resting bar) is green.
  • The third candle (second resting bar) is red.
  • These resting bars make a lower low into support. This tends to weaken support because sellers are trading the coin at lower prices.

How to Trade the Four Bar Play

Here’s what to do when you’re about to trade the 4 bar play pattern:

  • Determine the trend.
  • Ensure price is at a key level
  • Find the first momentum candle breaching the level. In an uptrend, that would be a large green candle over resistance. While in a downtrend it’ll be the first momentum candle below support.
  • Check for the next two candles if they’re significantly smaller than the first candle.
  • Ensure all three candles are relatively of the same high.
  • Finally, wait or spot the breakout candle. This is the fourth bar that closes above the high of the three candles.

The same steps outlined above can be used to spot the 4 bar play in a downtrend.

Frequently Asked Questions

Here are some answers to questions you may have regarding 3 & 4 bar plays.

1. Is the Three Bar Play a Japanese Candlestick Pattern?

I can’t say for sure.

It, however, bears a close resemblance to the falling or rising three methods. Both of these are continuation patterns that deal with mother candles and inside bars.

The pattern can also be compared to bull and bear flags.

On the other hand, I learned this pattern from Jared Wesley of Livetraders.

I didn’t even know I’ll need it until I began spotting the patterns on crypto and Forex charts.

Given that there’s little mention of this pattern by contemporary authors of trading books, I wouldn’t go wrong crediting this trading strategy to Jared.

2. Can 3 Bar Plays be Used for Bitcoin?

Of course, it can!

You can trade Bitcoin with the three-bar play setup.

The same goes for Ethereum, Binance coin, Matic, Shiba, Solana, and other top altcoins.

That’s because the formation springs up every now and then on crypto charts.

Hence, its use is not only limited to stocks.

If you use a Bitcoin chart, for instance, you’ll be able to spot the overall trend of the crypto market.

3. Can a 3 Bar Play Act as a Reversal Pattern?

A 3 bar setup is a continuation pattern.

However, there are rare cases where the third candle could reverse the trend.

In this case, you’ll be looking out for a large candle, a consolidation candle, and a breakout candle in the opposite direction.

Final Words

You’ve successfully learned how to trade the 3 bar play candlestick pattern.

What are you going to do with this knowledge?

Pull up a crypto chart and try to locate the setup or sleep on this info first?

Hopefully, it’s the first because this pattern can improve the way you trade.

And that comes with a promise of more profit than losses, which is the dream of every trader.

Now go out that and give these steps a try on a virtual currency chart of your choice.

Write back using the comment section below if you have any challenges while practicing with the three-bar play candlestick indicator.

Leave a Reply

Your email address will not be published. Required fields are marked *