What is the Three Outside Up?
The Three Outside Up is a three-candle bullish reversal candlestick pattern. It typically occurs at the end of a downtrend, signaling that bullish momentum is taking over and a potential trend reversal is underway.
How to identify the Three Outside Up pattern:
- Bearish candle: The first candlestick in the pattern is a bearish candle. This means it closes lower than its open price, indicating that the downtrend is still in control.
- Engulfing bullish candle: The second candlestick is a bullish candle that completely engulfs the first candle. This means that the second candle’s high is higher than the first candle’s high, and its low is lower than the first candle’s low. This engulfing action shows that the bulls are starting to gain strength.
- Confirmation candle: The third candlestick is another bullish candle that closes higher than the second candle’s close. This confirms that the bulls are in control and that the trend may be reversing.
Additional characteristics:
- The Three Outside Up pattern is more powerful when it occurs after a period of consolidation or a long downtrend.
- The volume of the second and third candlesticks should be higher than the volume of the first candle. This confirms that there is increasing buying pressure behind the price move.
- The pattern can also appear in an uptrend, signaling a continuation of the uptrend.
Trading the Three Outside Up:
Traders can use the Three Outside Up pattern as a signal to go long (buy) the asset. They can place a buy order above the high of the third candle, or wait for a pullback to the engulfing candle’s low before entering the trade.
It is important to remember that no candlestick pattern is perfect, and the Three Outside Up can sometimes fail. Traders should always use other technical and fundamental analysis tools to confirm their trading decisions.
I hope this explanation helps! Let me know if you have any other questions.