THREE ADVANCING WHITE SOLDIERS CAN HELP YOU FIGHT FOR PROFITS 

In one of our recent educational lessons we discussed the candle formation known as "three black crows." Occurring after a strong advance, three black crows is a reversal formation that consists of three consecutive down days. On each of these days it appears the stock wants to rally, but the bears then exert control and the stock closes at or near its lows for the day.

The bullish counterpart of three black crows is known as "three white soldiers" and is considered by some candle theorists as one of the most bullish candle patterns. The three white soldiers pattern is most potent when it occurs after an extended decline and a period of subsequent consolidation. When a particular stock posts a decline followed by a sideways movement, the appearance at that point of three white soldiers signals that higher prices are likely ahead.

The first of the three advancing white soldiers is a reversal candle. It either ends a downtrend or signifies that the stock is moving out of a period of consolidation after a decline. The candle on day two may open within the real body of day one. The pattern is valid as long as the candle of day two opens in the upper half of day one's range. By the end of day two, the stock should close near its high, leaving a very small or non-existent upper shadow. The same pattern is then repeated on day three. Below you will find an illustration of the three white soldiers candlestick pattern:

Although this candle pattern is very potent when a stock is at or near its lows, it should be regarded skeptically if it appears following a long advance in price. If you spot three white soldiers after a sustained rally, then it may mean a top is near. Be on the alert then for a reversal candle such as a doji or negative engulfing.

The chart of Autobytel (ABTL) below provides a good example of three white soldiers at the end of a consolidation period. ABTL peaked in early October at $12 and by early December had retraced to just under $8. The stock then bounced up above $9 and consolidated in a very narrow range until the end of the month.

So far, the year 2004 has been kind to Autobytel. Before Friday's sell-off the stock had advanced four days in a row with escalating volume. ABTL is still outside its upper Bollinger band -- a continuation signal. Meanwhile, the ADX indicator has given a strong buy signal, with +DI surging through –DI and the black ADX line beginning to trend upward from a very low level. The moving averages are all in "bullish alignment" with the four-day above the nine, which is above the twenty, which is above the thirty. Although the stock will likely need to consolidate after posting such a rapid, strong advance, it should ultimately test the previous October high at $12.70.

The "three white soldiers" pattern does not occur frequently, but as a swing trader you should definitely be on the lookout for it. These soldiers make great allies in your battle for swing trading profits.

Income Security of the Month Our "Income Security of the Month" for July 2008 invests in a fast-growing overseas market that doesn't get much exposure in the mainstream financial press. And although it typically makes enormous annual dividend payments -- it has paid an average dividend of 24.9% per year over the past five years -- this fund is perhaps most appealing for its total return potential. Specifically, the fund has delivered total returns of +263.9% since 2003, and it ranks in the top 10% of its category over the past decade.

Top 10 Stocks for 2008! Since we began publishing this report back in 2003, the picks we've featured have consistently beaten the broader market -- delivering average gains of +21.3% per year and outperforming the S&P by a nearly 2-to-1 margin. Act now to reserve your copy of our newest report -- Top Ten Stocks for 2008.