Three Outside Up/Down

What Is a Three Outside Up/Down?

The three outside up and three outside down are three-candle reversal patterns that show up on candlestick charts. The pattern requires three candles to form in a specific sequence, showing that the current trend has lost momentum and could signal a reversal of an existing trend. Specifically, the pattern is formed when a dark candlestick is followed by two white-body ones, or vice versa.

The three outside up and three outside down might be compared with a three inside up/down candle.

How Three Outside Up/Down Candlesticks Work

The three outside up is a bullish candlestick pattern with the following qualities:

1. The market is in a downtrend.
2. The main candle is black.
3. The subsequent candle is white with a long real body and completely contains the primary candle.
4. The third candle is white with a higher close than the subsequent candle.

The three outside down, in the mean time, is a bearish candlestick pattern with the following qualities:

1. The market is in a uptrend.
2. The primary candle is white.
3. The subsequent candle is black with a long real body that completely contains the primary candle.
4. The third candle is black with a close lower than the subsequent candle.

The primary candle denotes the beginning of the end for the predominant trend as the subsequent candle inundates the main candle. The third candle then denotes an acceleration of the reversal.

The three outside up and three outside down patterns happen habitually and are solid indicators of a reversal. Traders can involve these indicators as essential buying or selling signals yet watch for affirmations from other chart patterns or technical indicators.

Three Outside Up Trader Psychology

The main candle proceeds with the bearish trend, with the close lower than the open demonstrating strong selling interest while expanding bear confidence. The second candle opens lower yet switches, crossing through the opening tick in a display of bull power. This price action raises a red flag, advising bears to take profits or fix stops on the grounds that a reversal is conceivable.

The security keeps on posting gains, lifting price over the scope of the main candle, finishing a bullish outside day candlestick. This increments bull confidence and sets off buying signals, confirmed when the security posts another high on the third candle.

Three Outside Down Trader Psychology

The primary candle proceeds with the bullish trend, with the close higher than the open demonstrating strong buying interest while expanding bull confidence. The subsequent candle opens higher however switches, crossing through the opening tick in a display of bear power. This price action raises a red flag, advising bulls to take profits or fix stops on the grounds that a reversal is conceivable.

The security keeps on posting losses, seeing its price drop below the scope of the main candle, finishing a bearish outside day candlestick. This increments bear confidence and sets off selling signals, confirmed when the security posts a new low on the third candle.

Highlights

• Three outside up/down are patterns of three candlesticks that frequently signal a reversal in trend.
• Each attempts to leverage market psychology to peruse close term changes in sentiment.
• The three outside up and three outside down patterns are described by one candlestick promptly followed by two candlesticks of inverse overshadowing.