What Are Three Outside Up Patterns and How to Trade Them?

We have a basic stock trading course, swing trading course, 2 day trading courses, 2 options courses, 2 candlesticks courses, and broker courses to help you get started. Since price enters the three outside up from the top and exits out the top, it is a bullish reversal in this instance. However, the best trading setup is one in which
price is trending upward over the longer term. Then price drops in a retrace of that up move followed by an appearance of the three outside up candlestick pattern.

The Three Outside Up pattern is also a mirrored version of the Three Outside Down candlestick pattern. Everything that you need to know about the Three Outside Up candlestick pattern is here. You have to place the stop loss just below the low of the second engulfing candle. The location of the pattern in a candlestick pattern is highly important in this case.

With the closing higher than the open, the first candle maintains the bullish trend, showing significant buying demand and building bull confidence. The third and final candle, which indicates three outside down, must also be black. This candle, however, should close higher than the second candle. The third and final candle, which indicates three outside up, must also be white.

How 3 Outside Up/Down Candlesticks Work

For the three outside down pattern to form there needs to be a trend in place. The trend does not have to be long term but the longer the better. It will draw real-time zones that show you where the price is likely to test in the future.

  • Ideally, to increase the accuracy, we want to trade the Three Outside Down candlestick pattern by combining it with other types of technical analysis or indicators.
  • So to take profit level, you can use the resistance zone or a trailing stop indicator to close the trade in profit.
  • Since the price leading to the candle is upward and an upward exit results,
    it is a continuation pattern and not a reversal in this example.
  • Any investment decision you make in your self-directed account is solely your responsibility.

The three outside up/down candlestick patterns are distinguished by one white or black candlestick immediately followed by two candlesticks of the opposite hue. An engulfing pattern is a 2-bar reversal candlestick patternThe first candle is contained with the 2nd candleA bullish… The security continues to post gains, increasing price above the range of the first candle, completing a bullish outside day candlestick.

Three Outside Down Candlestick Pattern – (Trading Strategy and Backtest Definition & Meaning)

Each investor needs to review a security transaction for his or her own particular situation. This last bearish candlestick is considered the first candlestick in the pattern. What you have is a long bullish candlestick that is pointing to a possible reversal. Attempting to predict the market top is very risky, especially for stocks, which have unlimited upward potentials and limited downward potential. Taking a closer look at the pattern, you will notice that the first trading day’s candlestick is bullish, in line with the ongoing price rally. But it is quite small compared to other bullish candlesticks in that upswing, which indicates that the bulls are getting exhausted.


However, you will want to avoid
this candlestick pattern if you hold it for a short term (10 days). For longer term holds, avoid those in a bull market
after a downward breakout. Swing trading is a popular trading strategy that involves holding a position for several days or weeks to capture short-term price movements https://1investing.in/ in the market. One of the most important tools in a swing trader’s arsenal is the candlestick chart, which displays an asset’s open, high, low, and close prices over a specific period. Candlestick patterns can provide valuable information about the market’s direction, and one such pattern is the Three Outside Up.

What Is The Three Outside Down Candlestick Pattern

Ideally, to increase the accuracy, we want to trade the Three Outside Down candlestick pattern by combining it with other types of technical analysis or indicators. Stock traders relying on history and not luck do it slightly differently. These data-backed traders enter long when the price pushed above the third candle’s close while keeping the stop loss below the second candle’s low. What we really care about is helping you, and seeing you succeed as a trader. We want the everyday person to get the kind of training in the stock market we would have wanted when we started out.

The bears have ceased control from the bulls when the pattern forms are done letting them have that control so they come in. Typically, the first candle in the pattern is small, usually made up of various kinds of doji candle. Because the second day starts above the first and closes far below, there are clear signs of an impending reversal.

As mentioned above, this candlestick pattern follows a downtrend which means it appears in a bearish trend. It’s important to treat day trading stocks, options, futures, and swing trading like you would with getting a professional degree, a new trade, or starting any new career. Some swing traders use the three outside up pattern to spot a potential reversal of a down-trending market, but we don’t advise you to do this if you are a beginner. What they do is to watch how the price reacts after it has fallen to a well-known support level. If the price can break below the support level, they watch for the three outside up pattern, which is a strong reversal setup. The three outside up pattern has a strong bullish implication as it forms after an extended downward price movement.

The appearance of the second bigger bullish candle warns the traders that the market may take a reversal turn. At this stage, the number of buyers significantly begins to increase. The third and final step is the appearance of the third bullish candlestick.

What follows on the third trading day is another bull’s domination, which further confirms that the bulls have taken control of the market direction. As a beginner trader in the stock market, it may not be wise to go short on stocks. You may wish to limit yourself to taking only buy setups, like the three outside up pattern. However, you should also know how to identify the Three Outside Down pattern so that you may close your position when the pattern occurs since it is a very potent bearish reversal pattern. As you already know, bulls push the price up, while bears push it down.

How to Use the Signal for Swing Trading

The Three White Soldiers pattern is formed when three long bullish candles follow a DOWNTREND, signaling a reversal has occurred. The Morning Star and the Evening Star are triple candlestick patterns that you can usually find at the end of a trend. An evening star pattern is a bearish 3-bar reversal candlestick patternIt starts with a tall green candle, then a… Key takeaways A morning star pattern is a bullish 3-bar reversal candlestick patternIt starts with a tall red candle,… Next, traders get the confirmation and make the reversal much more likely.

If the price makes a decline to the level of the moving average, watch out for the three outside up pattern. A pattern that forms there will likely yield a profitable outcome. The three outside up trading pattern can be very effective in swing trading, but you will need to understand how to use it effectively in different market conditions. Before we look at the different market conditions, let’s first discuss some of the tools you can use to trade this candlestick setup. In a down-trending market, the moving average is sloping downward and mostly stays above the price bars.

Leave a Reply