The Secret Trading Duo: On-Balance Volume & Three White Soldiers Unleashed

The Forex market is a battlefield, and like any warzone, traders need weapons that give them an edge. If you’re still relying on basic candlestick patterns without volume confirmation, you’re basically bringing a spoon to a gunfight. Enter On-Balance Volume (OBV) and the Three White Soldiers—the power combo that most traders overlook.

What’s the deal with these two? Think of OBV as the market’s undercover informant—it whispers the real story behind price movements. And the Three White Soldiers? These are your elite troops, signaling a powerful bullish reversal. Together, they form an unbeatable duo, revealing hidden trends and opportunities that most traders miss.

Let’s break down this ninja strategy, expose the common misconceptions, and reveal how you can use it to dominate the Forex market.

Why Most Traders Get It Wrong (And How You Can Avoid It)

The problem with most traders? They see the Three White Soldiers pattern and blindly enter long positions without considering volume. That’s like assuming a Netflix show is good just because it has a cool trailer—big mistake. Volume matters because it confirms whether the price movement has real strength or if it’s just a deceptive head fake.

Myth #1: Three White Soldiers Always Mean a Bullish Run

Wrong. While the pattern signals strong buying pressure, without volume confirmation, it could be a bull trap.

Myth #2: OBV Is Just Another Indicator

Also wrong. OBV is a leading indicator—meaning it often moves before price action does. That makes it an early warning system for trend reversals.

Let’s put these two together and uncover how to use them effectively.

On-Balance Volume: The Market’s Whisper Network

On-Balance Volume (OBV) is like that one trader in your Telegram group who always seems to know where the market is heading. It tracks whether volume is flowing in or out of a currency pair, providing crucial clues about potential trend shifts.

How OBV Works:

• When OBV rises, it suggests institutional buying pressure (aka, smart money is loading up).
• When OBV falls, it signals distribution (aka, big players are quietly exiting).
• A divergence between OBV and price action often foreshadows a major move.

Example: If price is trending up, but OBV is declining, it’s a warning sign that the rally lacks real strength. Think of it like seeing an empty restaurant with a “Best Food in Town” sign—something doesn’t add up.

The Three White Soldiers: Your Elite Bullish Strike Force

The Three White Soldiers pattern consists of three consecutive bullish candles, each closing higher than the last, with little to no wicks. It signals a strong shift in momentum from bearish to bullish.

Key Characteristics:

• Three consecutive bullish candles (each larger than the last).
• Minimal upper and lower shadows (showing buyers are in full control).
• Emerging after a downtrend (confirming a reversal).

The Rookie Mistake:

• Traders see this pattern and go all-in, ignoring volume.
• They forget to check whether institutional buyers are behind the move.

The Power Combo: OBV + Three White Soldiers = Market Domination

This is where things get interesting. Instead of using these indicators in isolation, combining OBV with the Three White Soldiers provides a confirmation signal that filters out fake breakouts.

How to Trade It Like a Pro:

1. Identify the Three White Soldiers Pattern on the daily or 4-hour chart.
2. Check OBV:
   • If OBV is rising, it confirms real buying interest—consider entering a long position.
   • If OBV is flat or declining, it suggests weak momentum—stay out.
3. Look for a Pullback Entry:
   • Enter on a minor retracement to avoid chasing price.
4. Set a Smart Stop-Loss:
   • Place it below the second bullish candle’s low to minimize risk.
5. Ride the Trend Until OBV Diverges:
   • If OBV starts falling while price keeps rising, consider taking profits.

Real-World Example: GBP/AUD Breakout

Let’s look at a recent GBP/AUD setup where this strategy played out beautifully.

• Three White Soldiers formed after a prolonged downtrend.
• OBV confirmed the move by spiking higher.
• Traders who entered early rode the wave for a 250+ pip gain.

Meanwhile, those who ignored volume? They got faked out when a similar pattern appeared two weeks earlier—but OBV was flat, signaling weak buying pressure. Ouch.

Final Thoughts: The Hidden Gem Strategy Most Traders Ignore

Most traders fixate on price action alone, missing the crucial role that volume plays. By combining OBV with the Three White Soldiers, you gain a game-changing advantage—one that separates pros from amateurs.

Key Takeaways:

✅ OBV is a leading indicator—watch for volume confirmation before trusting candlestick patterns.

✅ Three White Soldiers are powerful, but only when backed by strong volume.

✅ The OBV + Three White Soldiers combo helps filter out fake breakouts.

✅ Smart money leaves clues—always follow volume, not just price.

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Image Credits: Cover image at the top is AI-generated