3 Candle Reversal (3CR)

3 Candle Reversal (3CR) is a compact price‑action pattern that captures a shift from continuation to reversal in just three candles. It looks simple, yet when applied with confirmation and risk discipline it becomes a reliable tool for intraday and swing traders alike. You do not need long‑term charts to use it; the logic holds from higher timeframes down to the M1 chart, where execution can be precise with small, well‑defined stops.

Structure of the 3CR

The pattern unfolds in three steps:

  1. Candle 1: a strong close in the prevailing trend direction (shows existing momentum).
  2. Candle 2: a pause or weak move against the trend (momentum hesitates).
  3. Candle 3: a decisive close against the original trend (confirms the turn).

This sequence compresses the story of exhaustion, hesitation, and takeover. The edge does not come from guessing that a third candle will print, but from waiting until it closes and confirms control has changed.

Reading momentum and context

3CR is more than a visual pattern; it is a context filter. Candle 1 tells you where energy was concentrated. Candle 2 reveals that energy fading or being challenged. Candle 3 proves acceptance in the new direction. Grade momentum by the quality of closes and wicks: impulsive bodies with follow‑through suggest strength; overlapping bodies with long opposite wicks suggest fatigue. A 3CR that forms at a meaningful level—prior swing, session high/low, ADR extreme, or higher‑timeframe zone—carries far more weight than one in the middle of nowhere.

Confirmation first: “no close, no signal”

Anticipating Candle 3 is the fastest way to turn a good idea into an avoidable loss. Require the third candle to finish. Without a closing print, there is no confirmation that participants accepted the new price area. On lower timeframes, use the exact close of Candle 3 or a small retrace entry if the structure remains intact; either way, confirmation precedes risk.

Execution on M1–H1

The 3CR logic is timeframe‑agnostic. On M15–H1 it marks clean swing turns; on M1 it pinpoints micro‑reversals with tight stops. The smaller the timeframe, the more you need structure to avoid noise. A practical approach: mark H4/H1 zones, monitor M15/M5 for developing 3CRs near those zones, and execute on M5/M1 once Candle 3 closes. This top‑down flow aligns location, story, and timing.

Stops, targets, and position sizing

  • Stop placement: beyond the extreme wick of the 3CR sequence (the invalidation point). Stops are technical, never arbitrary.
  • Risk per trade: 0.25–1.00% of equity, reduced when recovering from drawdown.
  • Targets: logical areas such as opposing structure, session midlines, VWAP/ADR bands, or measured risk multiples (≥ 1:2).

Size the position from the stop distance—risk is the input, lot size the output. This single habit turns a pattern into a repeatable process.

Confluence that strengthens 3CR

  • Levels: prior highs/lows, daily open, weekly open, round numbers.
  • Trend tools: moving averages (e.g., EMA 50/120) acting as dynamic support/resistance.
  • Session context: London open drives the initial move; New York overlap provides decisive closes.
  • Volatility: ADR extremes or range expansions add conviction to a reversal signal.

Common mistakes and fixes

  • Front‑running Candle 3: wait for the close; if missed, there will be a next setup.
  • Trading every 3‑bar wiggle: demand location at a meaningful level.
  • Ignoring momentum quality: grade Candle 3—does it close beyond prior bodies/wicks or just poke?
  • Moving stops emotionally: define invalidation beforehand; adjust only if structure objectively shifts.

Playbook examples

Bearish 3CR in an uptrend. After a strong green Candle 1, a small red Candle 2 prints. Candle 3 closes decisively red below Candle 1’s midpoint at a prior daily high. Entry on the close or a minor pullback. Stop above the 3CR high; target the nearest demand or a 1:2 multiple. The story: buyers exhausted into resistance and sellers took control.

Bullish 3CR in a downtrend. Candle 1 is strong red into a weekly low. Candle 2 is a small green pause. Candle 3 closes firmly green back above the broken level. Entry after the close; stop below the 3CR low; target prior supply or ADR midpoint. The story: shorts trapped beneath support fuel the reversal.

Routine and record‑keeping

Treat 3CR as a process, not a prediction. Before each session, mark two A+ locations where a confirmed 3CR would deserve risk. During London–NY overlap, wait for completion. After the trade, log screenshot, entry, exit, and a one‑line lesson. Review weekly: keep what works, fix what is close, remove what fails. Consistency compounds when the routine is boring by design.

Conclusion

3 Candle Reversal distills a major shift into three prints: momentum, hesitation, takeover. It is powerful because it demands confirmation and provides a clear invalidation. Used with strict risk and location, it turns market noise into structured opportunity—from higher timeframes down to M1. Wait for Candle 3 to close, align with context, keep risk small, and let repetition do the heavy lifting.

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