All You Need to Know About 3 Bar Play Chart Pattern

Spread the love

Day trading involves both science and art. However, you must have an eye for detail to master the scientific portion. Finding these patterns will certainly help you execute trades correctly, both when entering and leaving them. Discover how to profit from these trends.

There are several trading methods being presented to the market, but 3 Bar Play is the most significant one. In addition, several day traders use it, including Sami Abusaad from T3Live, Oliver Velez from iFundTraders, and Jared Wesley from LiveTraders.

On price charts, one of the most well-liked and regular chart patterns is the three-bar play pattern. Day traders frequently utilize this chart pattern to discover trade opportunities and to enter and exit positions due to its high frequency.

To recognize and trade the 3 bar pattern, you must be aware of the relevant variables and trading techniques. You will learn how to identify, decipher, and trade this chart pattern in this article.

The 3 Bar Play Candlestick Pattern: What Does It Mean?

The three or four consecutive candlesticks that make up the classic chart pattern known as the “3 bar play” can occur in a market that is in an uptrend, downturn, or neutral trend.

Technically, even though the pattern is referred to as a “3 bar play pattern,” some formations use four candles instead of only three. Furthermore, depending on where it appears on the chart, the three bar play can either be a trend continuation pattern or a trend reversal pattern.

The rising three (bullish), the falling three (bearish), the three bar bullish reversal, and the three bar bearish reversal are the four main varieties of the three bar (and four bar) play patterns.

Nevertheless, day traders and scalpers frequently employ it since it is a dependable and relatively simple-to-spot chart pattern. The typical trading technique for short-term price movements using this chart pattern is to seek to close the position at the level of the closest profit goal. As a result of its ability to help traders locate profitable trades, this pattern is often used in the stock market.

How to Recognize and Use the 3 Bar Play Pattern When Trading Forex

The 3-bar play pattern’s ease of recognition and application is one of its main benefits. After all, it is a three candle pattern, similar to the three black crows and the downside and upside three method price patterns, that may show up in any market circumstance and can give either bullish or bearish indications.

The pullback bar(s), whether there are one or two, should be few and tightly spaced apart when using this approach.

In light of this, let’s examine the three key criteria for determining a 3 bar play.

  1. The first bar must be a “igniting” bar, which is ideally a candle with a very wide range and high volume.
  2. The pullback bar, also known as bars 2 and 3, must have roughly identical highs and not exceed 50% retracement of the first bar.
  3. The expansion candle (or trigger bar) must be a nice marubozu candle to new lows or highs.

Entry is made with a stop below the smaller “inner candles” at their break.

Here is an example of how this may seem for both long and short trades:

The midway point of the first ignite bar, or “Elephant bar,” as Velez refers to them, offers traders a defined risk. You aim to play a continuation in the primary direction of the premarket gap or trend.

Let’s examine a price chart to see an illustration of the three-bar play pattern:

The 3-bar play pattern appears at the bottom of a downtrend, as shown in the USD/JPY 5-minutes chart above. The length of the first bar suggests that there may be a change in trend.

The second candle is bearish and forms a Doji candlestick chart pattern, which is a short range bar that denotes market illiquidity.

The 3-bar play pattern is confirmed once the third bar crosses above the second candle, at which point a buying signal is issued with a stop loss placed beneath the first candle’s lowest level.

In light of the aforementioned illustration, here is what you should keep in mind to recognize the three-bar play pattern:

  1. Determine the three-bar play chart formation.
  2. To corroborate the signal, use the moving average and other momentum indicators.
  3. Once the third candle (also referred as the momentum bar) climbs over the second middle candlestick, enter a position.
  4. Set a stop-loss at the first candle’s lowest or highest level (dependent on the market trend)
  5. Set a take profit objective at the next Fibonacci retracement level.

What Does a Three Bar Reversal Pattern Mean?

Either a bullish or bearish 3 bar reversal pattern is available. It is a reversal pattern, as its name implies. It appears on all chart timeframes. You’ll definitely enjoy this pattern if you’re a day trader because you can find it everywhere.

The 3 Bar Reversal Pattern: What Does It Look Like?

In a market that is downtrending, we want the formation of three candlesticks in the following order:

  1. a candlestick that is bearish (red)
  2. The next candlestick closes Just below prior candlestick’s opening. The three bar reversal pattern’s lowest low will also be represented by this candlestick.
  3. When compared to candlesticks 1 and 2, the third candlestick closes above their peak.

Three-bar reversals are far too frequent in intraday time-frames, according to Alton Hill. He wants the third bar in the pattern to close above the highs of the previous two bars in order to choose the best three-bar reversal patterns for day trading.

The difference between the standard three-bar reversal pattern and Alton Hill’s day trading variation is seen in the diagram below.

Strategies and Examples for Trading with the 3 Bar Play Candlestick Pattern

The 3-bar play pattern typically signals a shift in the market’s trend. Price consolidation is a common occurrence in ranging markets, and the third or fourth candle signals that the market is likely to break out of the range.

The three bar play pattern can be used, as we previously said, to take either a long or short position. A trader often opens a position when the three bar play pattern appears, with a stop loss placed below the low point of the first candle, once the third candle rises above the second. This chart pattern has that as its main premise.

Having stated that, you must be able to recognize and validate the pattern. In order to help you confirm the pattern, we’ve included two examples of the three-bar play pattern below along with momentum indicators.

Examples of 3 Bar Play Long Trade

The best use for these setups is as a continuation pattern, as we covered earlier. In other words, you want a continuation over resistance from either a daily or premarket level if the stock is gapping higher. Even better would be a blend of the two possibilities!

Let’s look at this PBTS example to support that.

On this particular morning, the stock was gapping up a lot in the premarket before settling nicely into the open. On the first 2-minute candle after the open, the stock increases. It consolidates for one bar before moving forward in the gap’s direction.

The pattern’s second candle was a neat pullback on reduced volume. You ought to place your entry directly above both this and the first candle. A solid gain of 16% from our entry in just under 15 minutes was produced by the breakout.

Examples of 3 Bar Play Long Trade #2: TSLA

In this illustration, we’ll use the 1-minute chart to identify the 3 Bar Play. Before we proceed, it’s crucial to remember that Tesla’s explosive breakout from a consolidation on the daily chart gave us the motivation to go long on this three-bar move.

First, take note of the resistance line on the daily chart:

Now that we have zoomed in on the premarket and opening bell, we can see that this line was also a crucial level there. Here, it matters because if this line is crossed, there are only “green pastures” above us.

We see an igniting bar going up and past resistance, followed by a brief stop and then a continuation, just as we did in our prior cases.

Remember that it doesn’t really matter if the “pause” candle is red or green. It is crucial that it forms close to the top of the first candle and does not retrace too much of that candle.

In the case of TSLA, we had a good chance to make almost $10 in profit in a short period of time.

Examples of 3 Bar Play Short Trade

The 3 Bar Play technique has the advantage of being playable in either direction. The same strategy may be used for stocks that are breaking down, just as you can seek for stocks that are gapping up and/or breaking out on a daily time period.

Let’s look at this OCGN example to illustrate this.

Take note of the lovely gap down through previous support on the daily chart in this instance. This provides us with direction in the premarket.

This method has the advantage because it is simple to look for holes in the morning. Once the market opens, all we have to do is look at the longer time periods for a nice continuation move.

In keeping with that, let’s examine the premarket and open for this specific day with OCGN:

On this two-minute chart, OCGN comfortably surpassed the $7.50 premarket support level. After a little pause, the performance resumed with a lovely trigger candle. This produced an immediate $1.25 gain. Not bad for work that took 15 minutes.

The 3 Bar Reversal Pattern Entry Time

Lower time frames are particularly advantageous for the 3 bar reversal pattern. I specifically trade this pattern when trading futures off the 5-minute chart. I do this since it limits my trading opportunities and gives me confirmation of trade entrance. Attempting to find and trade too many setups frequently results in overwhelm and confusion. I merely search for and exchange one set up in this manner, and it works!

Long Set Up Entry 3 Bar Reversal Pattern

My entry is confirmed by the third candlestick closing above the high of the first and second candlesticks. It would confirm market momentum and purchasing if the closure were required to break through the first two candlesticks. I do this in order to avoid being trapped in a fake breakout.

To cut a long story short, a long setup entry would be something like this:

  1. Bearish closing on Bar 1 (red)
  2. The low of bar 2 is lower than the low of bar 1 and bar 3.
  3. Bar 3 finishes higher than the highs of bars 1 and 2.
  4. Long at the end of bar 3

If you were feeling more daring, you could put a buy stop order at a closing above the second candlestick. The trading example is shown below.

This is a 5-minute ES futures chart. It displays the normal session.

I used a portion of the preceding section to demonstrate the uptrend that stopped yesterday. Prices rose for the rest of the session following our entry.

  1. The preceding session finished on a bullish note.
  2. The three-bar reversal pattern also functioned as the right shoulder of a bullish head and shoulders formation. (You may have observed that the pattern on its head was a normal three-bar reversal pattern.) It provided a better entry than our improved pattern in this example.)
  3. The pattern’s final bar closed above the highs of the two prior bars. That was our cue to buy.

Short Set Up Entry 3 Bar Reversal Pattern

A short setup entry would look like this:

  1. The first bar closes bullish.
  2. Bar 2’s high is above Bar 1’s high, and eventually Bar 3’s highs.
  3. Bar 3 closes below both Bar 1’s and Bar 2’s low points.
  4. Sell when Bar 3 comes to an end.

The trading example is shown below.

This is an E-mini Dow contract 5-minute chart. The pattern failed right after entry despite a strong signal bar.

  1. Despite a seven-bar drop in prices, the increased purchasing pressure is visible since the bars have longer bottom tails (shadows).
  2. As the pullback was made upward, tails began to form at the top of the bars. Mixed indications from the bars’ top and bottom tails suggest that pricing may soon get crowded.
  3. We would have made a loss if we had shorted the three-bar reversal pattern in spite of the aforementioned red flags.

To locate trade settings with a high possibility of success, you can easily combine this pattern with other indicators or price patterns. A head and shoulders formation and a three bar reversal pattern are perfectly combined in the winning example.

But because of this extra criterion, the signal bar (Bar 3) typically has a broad range. The trade risk may be larger because our stop-losses are typically set at the opposite end of the signal bar. If possible, we should either reduce the amount of our trade or tighten the stop. Skip the trade setup if you are unable to manage the risk.

Last but not least, if the pattern’s central bar is an outer bar, proceed with extreme caution. Wild and erratic price movement frequently precedes outside bars.

Managing a Three Bar Play Position

You might be asking at this point how to handle a position when using this method. It’s important to consider a couple things in this.

You might wish to set strict objectives and stops if you’re a beginner who is still learning about volume and price action.

Here are a few strategies you can use. We go into more detail about this below.

Take Profit Objective at Particular R-Values

You basically calculate risk and reward using R-values. Let’s assume that you entered short at $7.22 using the OCGN example from earlier. You would be taking a $0.22 loss on the trade if you used the $7.44 region as your stop as indicated on the chart.

You might believe that a 2R, 3R, or 4R is appropriate when calculating your reward. If so, you just multiply your risk by two, three, or four.

A 3R trade in this instance would result in 3 x $0.22, or $0.66. That means, from your entry, you’re looking to take profits at $7.22 – $0.66 = $6.56.

As a result, you would have placed a take profit order at $6.56, which would have been around the bottom of the second long red candle on the chart following your entrance. This is how that would seem:

In other words, your trade had a risk-to-reward ratio of 1 to 3. Stick with it if this fits your personality. It’s true that this is a bit of a “all or nothing” strategy, and you might decide to exit if your target is not met and the stock declines. But that’s how the game is played. You might wish to modify your profit-taking guidelines in the future to incorporate trailing stops.

Let’s examine how a higher time frame would have enabled you to benefit more from this trade.

Support and Resistance on a Higher Time Frame

Returning to the OCGN daily chart, it is evident that the stock is “covering the gap” and encountering probable support at this $6 level. These levels can be used by traders to potentially set targets.

A stock will frequently find support at daily levels. This $6 psychological level, which is also a “whole dollar” level, accomplished that exact goal for OCGN. As shown on the chart, it fell on the same day as the peak of the previous candle before the gap.

The savvy trader may have set this as a target regardless of the R-value if they knew this. Alternatively, he or she may have taken a portion at the 3R level, which is $6.56, and the remaining portion at this crucial level. Before turning around, it turned out to be the bottom for OCGN on this day.

Even more experienced traders might have increased their position during the initial retreat when the price fell further.

Generally speaking, it’s preferable to keep things straightforward and pay yourself along the way.

Alternative Trade Management Techniques

Another excellent set of tools to help you find regions to sell or cover are Fibonacci lines and pivot points. We’ll go into greater detail about those tactics.

But if you want to keep things straightforward, you should keep in mind the proverb “sell into strength.” Finding equities that are “oversold” or “overextended” and selling into those movements is the goal here.

Fast and frantic selling followed the opening of OCGN that morning. For any typical stock, this level of selling pressure is unsustainable.

Due to their awareness of this, the majority of traders will sell into excessive strength or weakness or cover their positions, knowing that a rally may be on the horizon.

Using a stock’s distance from its 10- or 20-day moving averages to determine the extent of an overextension is one approach to illustrate it. as displayed in the graph above. From the blue 10ma on the chart, OCGN had significantly extended. This is a strong indication that the stock will eventually reverse.

There are many different approaches to managing trading, and each one has advantages and disadvantages. To set profit targets and remove emotions from trading, it’s really up to you to experiment with what works best for you.

Pros and Cons of the 3 Bar Play Pattern

Here are the pros of trading the 3 bar play pattern:

  1. Simple to recognize
  2. Ideal for day trading, this chart pattern is very popular in intraday time frames.
  3. It provides a good indicator for short-term trading tactics.

Here are the cons of trading the 3 bar play pattern:

  1. primarily appropriate for day trading
  2. occasionally sends out false signals


To identify trade setups with a high possibility of success, investors are allowed to combine 3 bar play with other indicators or price patterns. A head and shoulders formation and a three-bar reversal are perfectly combined in the winning example. Here are some important lessons learned from trading the 3 bar play pattern:

  1. The three-candle pattern known as the “3 bar play” provides a trustworthy signal to enter or leave a trade.
  2. When the third candle rises (or falls) over (or below) the second rest bar, the pattern—which consists of three (or four) candlesticks—is confirmed (if bullish or bearish)
  3. When it comes to day trading setup and methods, the 3 bar pattern works quite well.
  4. When trading the three-bar play pattern, it is essential to employ other indicators to verify the pattern’s validity, such as moving averages, MACD, and Fibonacci support and resistance levels.
  5. A stop loss should be set below (or above) the first candle’s lowest or maximum level.

Spread the love