Three Outside-Up Candlestick Pattern

Mastering the Three Outside Up Candlestick Pattern: A Guide to Bullish Reversals

On candlestick charts, the Three Outside Up is a three-candle reversal pattern. This pattern forms when a bearish candlestick is followed by two bullish candles, signaling a potential trend reversal. The precise order of these three candles indicates that the current trend has slowed and may be reversing direction.

In this tutorial, we'll explore how the Three Outside Up candlestick pattern predicts a price reversal after a downtrend and outline a trading strategy that leverages this pattern for profitable trades.

Name:Three Outside Up
Forecast:Bullish Reversal
Trend prior to the pattern:Downtrend
Opposite pattern:Three Outside Down
Accuracy rate:75%
A Quick Overview of Three Outside Up Pattern

A Quick Overview of Three Outside Up Pattern

The three outside up formations appear regularly and are good reversal signs. The first candle, with the closure lower than the open, maintains the bearish trend, showing significant selling interest and building bear confidence. The second candle begins lower but quickly reverses, crossing through the first tick in a bullish showing. This market movement raises a warning flag for bears, signaling that gains should be taken or stops tightened because a reversal is probable. According to Bulkowski, this reversal predicts higher prices with an 75% accuracy rate.

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What is 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.
Identifying a Three Outside Up Pattern

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.

Differences Between 'Three Outside Up' and 'Three Outside Down' candlestick pattern

Differences Between 'Three Outside Up' and 'Three Outside Down'

On candlestick charts, the three outside up and three outside down are three-candle reversal patterns. The pattern requires three candles to develop in a precise order, indicating that the current trend has slowed and may indicate a trend reversal.

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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.


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