THREE OUTSIDE UP CANDLESTICK PATTERN

The Three Outside Up signal is a reversal indicator that no knowledgeable trader will overlook. It starts in the midst of a long period of decline. The market has been declining for a time, and the first day of this candlestick pattern's lengthy red candlestick is a continuation of that downward trend. The second day, however, starts low and then slowly rises during the day, finishing with a closing price that is considerably above the first day's beginning point, forming a long green candle and indicating a likely reversal. With another lengthy green candlestick and an even higher close, the third day supports the reversal foreshadowed by the previous two days.

• Three outside up is a three-candlestick pattern that generally indicates a trend reversal.
• One candlestick is promptly followed by two candlesticks of opposite shade in the three outside up patterns.
• The three outside up patterns attempt to interpret near-term shifts in mood by using market psychology.

A bullish engulfing candle is what you're looking for. A red candle starts the pattern, which is followed by a taller green candle. By taller, we mean that the price opens close to the previous close and closes higher than the previous open, completely enveloping the red candle's body. The next day ends with a higher close, producing a green candle.

Consider the following facts to establish that the candlestick pattern is "Three outside up."

• The market is on a downward trend.
• The first candle is a red bearish candle.
• The second candle is a green bullish candle with a lengthy real body that completely covers the first.
• The third candle is a green bullish candle that closes higher than the second.

The first candle signals the start of the end for the current trend, as the second candle engulfs the first. The reversal is then accelerated by the third candle.

Following a downtrend, three outside up formations indicate a bullish turnaround. It notifies traders that the bulls have given up authority to the bears. Change is on the way, even if the first candlestick of the pattern is still part of the downtrend. The bulls arrive on the second day and chase the bears away. They totally consume the previous day, yet the day does not begin in this manner. It opens quite close to the previous day, giving the impression that the trend will continue. Others may have to wait until the third day for confirmation. They don't want to get caught in a ruse. The greater the reversal is, though, the more of a real body the second candle has.

The three outside up formations appear regularly and are good reversal signs. These indications can be used as main buying or selling signals, but traders should still look for confirmation from other chart patterns or technical indicators.

When the primary price trend is upward, this pattern works nicely. The downtrend stops when price climbs away after retracing a chunk of the up advance until the three outside up candles show. In a main downturn, you should either ignore this candle pattern entirely or trade it with caution. Price may bounce about while trying to locate a bottom, even if it occurs after a protracted downturn.

• If price closes higher following the three outside up, the chances of a reversal are 93 percent.