In this lesson, we'll look at how the "Three inside up" candlestick pattern predicts a price turnaround following a bearish trend, as well as a trading method that employs it.

• What is the Three Inside Up Candlestick Pattern?
• Key Points of the Three Inside Up Candlestick Pattern
• Identifying a Three Inside Up Candlestick
• What the Three Inside Up Pattern Indicates to Traders
• Limitations of Using the Three Inside Up Candlestick Pattern
• Effective Trading Tactics with Three Inside Up Patterns

Three Inside Up is a bullish reversal candlestick pattern that consists of a huge down candle, a smaller up candle, and another up candle. The first huge down candle always contains the smaller up candle, and the last up candle always closes (in price) above the second candle's closing price.

The pattern's psychology begins with a downward price trend. The ball is in the hands of the Bears, and they are not about to surrender it easily. The bears are determined to drive price down, as seen by the tall red candle. The ball is subsequently stolen by the bulls, but the bears battle back to reclaim it. A little green candle begins to grow. The next day, another green candle appears, showing that the bulls remain in control of the ball and will not allow the bears to reclaim it anytime soon. The green candle shows that the downward trend has shifted to upward.

• Three Inside up is a three-bar bullish reversal pattern.
• This bullish reversal pattern consists of a large down candle, a smaller up candle encased within the previous candle, and then another up candle that closes above the closing of the second candle.
• These patterns are transient, and they may or may not result in a large or even modest trend shift.
• Consider utilizing these patterns as part of a larger trend. Use the three inside up, for example, during a downturn in an overall rally.

This is a powerful reversal indicator that appears towards the end of a downtrend. There is still a continuation of the first candle's downturn, as with other reversal candlestick formations. The downtrend, however, begins to weaken in the following candles, as seen by powerful bullish candles. The bearish cycle is over if the pattern is validated. The price starts to rise again after a period of decline.

To confirm that the candlestick pattern is "Three Inside Up," consider the following points.

• The market is on a downward trend.
• The first candle is a huge red (Bearish) candle.
• The second candle is a little green (Bullish) candle with a real body that opens and shuts within the first candle's real body.
• The third candle is a green (Bullish) candle that closes higher than the second candle's closing.

It isn't necessary to trade the three inner up/down patterns. It might merely serve as a warning sign that the short-term price trend is shifting. For those who want to trade it, a long position may be taken on the third candle, or on the next open for a bullish three inside up, near the conclusion of the day. The low of the third, second, or first candle might be used as a stop loss. This is determined by the trader's risk tolerance.

There are no profit goals in these patterns. As a result, it's advisable to use a different strategy for determining whether to capture gains if they occur. This might entail employing a trailing stop loss, leaving at a specified risk/reward ratio, or signaling an exit with technical indicators or other candlestick patterns.

Because the pattern is so widespread, it isn't always reliable. It's also short-term, so while it might occasionally result in big trend shifts, it's more likely to result in a moderate to medium-sized shift in the new direction. Following the pattern, the price may not move in the predicted direction and instead revert to the previous trend's direction.

When this candle pattern comes as a reversal of a downward price trend in an upward main trend, it is most effective. That implies price rises throughout time, but when it takes a break and falls for a few days or weeks, the three inside up candle appears, signaling the uptrend is about to resume.

It doesn't require another confirmation candle because the three inside up was created as confirmation of a Bullish Haramicandle. In a bull market, however, using one and waiting for a higher close after the candle finishes indicates a reversal 87 percent of the time.