Technical Classroom: How to read Three Outside Up & Three Outside Down candle stick patterns

It is short-bodied because there is in-fighting going on among the bulls and bears while the first candle is being formed. There must be a prevailing downtrend for this trend to appear. On combining this pattern with any other technical indicators like Volume, Stochastic, RSI, MACD etc., further confirms this pattern and one can quickly pick up the trend change or the sell signal. For example evidence of higher volume on the second and third day further strengthen this pattern reliability. Similarly a price gap down the next day support further, this pattern of trend reversal. On combining this pattern with any other technical indicators like Volume, Stochastic, RSI, MACD etc., further confirms this pattern and one can quickly pick up the trend change or the buy signal.

In the figure above, we can see a schematic diagram of the three outside-up candlestick patterns. As mentioned above, we have three consecutive candlesticks here. So, for the pattern and the trend reversal to be considered successful, the third candle also needs to turn out to be bearish. Once this candle confirms the trend reversal, you are free to deploy your trading strategy. I started to take courses from the CAPITAL VERSITY platform.

The third candle is a bullish candle with an open at or little below the close of the second candle but closes higher than the second candle. The second candle is a bullish candle which gaps down but completely engulfs the bearishness of the previous candle. Outside means the price action of the second candle traded outside the high and low of the first candle. This pattern is an extension of the two-line bearish engulfing pattern. This pattern is an extension of the two-line bullish engulfing pattern. We may expect a similar kind of result in another chart if we trade this pattern.

CA Bigyan Kumar Mishra is a fellow member of the Institute of Chartered Accountants of India. He writes about personal finance, income tax, goods and services tax , company law and other topics on finance. The first candle is a bearish candle showing continuation of the bearishness in the market.

This action raises a red flag for any bears who may want to take their profits now and tighten their stops due to the possibility of a reversal in the market. Educational content to support the current market climate is also posted regularly. Our foundation course will provide you with all the tools & analysis required to generate a secondary income alongside your current work commitments. We have simplified proven trading techniques and strategies easy to understand to give you the best start in the markets and understand when to pull the trigger with high probability trading setups.

Pattern generally occurs during a bullish trend and involves three consecutive candlesticks. The movement of these candles invariably indicate whether a trend reversal is on the cards or not. The pattern is characterised by a single bullish candle, followed by two bearish candles. Accurate identification of this pattern is essential for executing counter-trend trading strategies. With the third candle, one gets further confirmation that the market may be experiencing a reversal in its trend. This is because the security continues to show gains, with the price now being well above the boundaries of the first candle.

This second candle should ideally be long and engulf the first bullish candle. Since this phase is extremely important, it is advisable to consider entering into a trade only if the second candle in the pattern satisfies these conditions. Live from the trading floor our professional traders allow all members to trade alongside them 3 times per week. Second candle starts with a gap up opening, showing that bulls are still in control, however they don’t control the price action for long as bears stepped in and took the control to bring the price down. The second candle has a close lower than the first candle’s low.

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Be sure you practice identifying and trading these candlestick patterns on a demo account before trading them with real money. To complete the pattern, on the third bar, bulls pushed the prices higher than the high of the second candle. Since there is a bullish trend, a long green candle is formed on the first day indicating further bullishness. These patterns are found often in candlestick charts and provide good trading opportunities. But though often found, these patterns do not give good profit margins always. Statistical data says, on average, a net profit of approximately 5% can be had over the long term.

  • This candlestick pattern is also a three-candle reversal pattern.
  • This is confirmed by the long bullish candlestick formed the next day.
  • Three Outside Down Candlestick Chart Pattern by itself is a confirmed chart pattern but one has to see the overall market and other technical indicatorsfor its strength and reliability.
  • As requested I would like to mention that CAPITAL VERSITY is a wonderful platform to learn and enhance the knowledge in all the TRADES with the help of Professors and Experts.
  • In-depth technical knowledge of Trends & Patterns to identify price movements.
  • This formation is a reversal signal that no smart trader will ignore.

Three Outside Down Candlestick Chart Pattern is a bearish trend reversal pattern of strong reliability. This pattern is just opposite of the Three Outside Up Pattern. This pattern is a three day candlestick pattern or one can say it takes three days for this pattern to be formed. If see deeply into the pattern, its a further extension of Bearish Engulfing Candlestick pattern or its a confirmation of Bullish Engulfing Pattern. In technical analysis, candlestick patterns are a representation of the market structure. They tell us how bulls and bears interact with each other at any given time.

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As you can see, the price is trending hard in the upward direction, indicating that the bulls are in control of the market. In keeping with the trend, the first candle in the pattern closes positively. However, the body of the candle remains small, which can be construed as an indication of a slow down in the buying interest. The second candle opens ‘gap up’ signifying the bulls’ effort to push the prices further upward. We collect, retain, and use your contact information for legitimate business purposes only, to contact you and to provide you information & latest updates regarding our products & services.

three outside candlestick pattern

The third bearish candle must close below the second bearish candle. This is an essential feature of the three outside down patterns. It must be noted that if the reversal pattern has to continue, the price must break through resistance zones.

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It’s easy to see that prices have nowhere to move but upward, allowing you and any other traders wise enough to recognize this pattern the chance to maximize profits. Because this pattern is considered confirmation of another two candlestick pattern, no confirmation is really needed. However, if market forces seem to indicate further downward movement, you can wait for confirmation on the fourth trading day. Appearing in a downtrend, preferably at the end of the downtrend, this candlestick pattern consists of three consecutive candles that form this pattern.

On the final day, we put theory to practice for a full day of live trading. The three outside down candlestick pattern occurs during a bullish market. It begins with a short white candlestick on day one, but the second day comes with a surprise.

The market has hit its bottom-most point and is ready to make a strong rebound. The only question is whether you will stand to profit from this bullish reversal. This candlestick pattern is a three-candlestick bullish reversal pattern. This pattern indicates the end of the prevailing trend from an existing bearish trend. Financial Markets Online is the No.1 Best Forex education course on Trustpilot with thousands of successful traders all over the world working with our professional team across the financial markets. We work with a wide variety of individuals from new traders as well as experienced professionals.

three outside candlestick pattern

The first candle is red which is a part of the prevailing downtrend. The next two candles are green candles indicating a bullish reversal. For this pattern to be considered successful, it is highly essential for the third bearish candle to close below the second bearish engulfing candle. This acts as a sort of a confirmation of the bearish trend reversal.

How to Find the Three Outside Up Candlestick Pattern?

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We should also note that the stronger the second candlestick is, the stronger is the reversal pattern. The three outside up pattern provides easy entry and stop-loss. But as we already know, before trading an asset, a trader must confirm the market condition overall. Unless the trade can be confirmed from other indicators, at least one other indicated, a trader should not commit any position. At this point, the buying interest completely loses steam and the bears enter the market.

Tutorial on Three Outside Up Candlestick Pattern

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By |2023-02-07T12:47:03+00:00November 24th, 2021|Categories: Forex Trading|0 Comments

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