🔍 What is the Three Outside Up / Down Pattern?
The Three Outside Up and Three Outside Down are 3-candle reversal patterns based on an Engulfing pattern followed by confirmation.
👉 These patterns signal a strong change in market direction with additional confirmation strength.
🟢 Three Outside Up (Bullish Reversal)
📈 Structure
- 🔴 First candle → bearish candle in a downtrend
- 🟢 Second candle → bullish engulfing candle
- 🟢 Third candle → another bullish candle closing higher
👉 Confirms buyers are gaining full control.
💡 Psychology Behind Three Outside Up
- Sellers dominate initially
- Buyers suddenly overpower sellers (engulfing candle)
- Third candle confirms bullish momentum
👉 Strong signal that the downtrend may reverse upward.
✅ How to Trade Three Outside Up
- Buy above the third candle’s high
- Stop loss below the pattern low
- Use resistance zones as targets
🔴 Three Outside Down (Bearish Reversal)
📉 Structure
- 🟢 First candle → bullish candle in an uptrend
- 🔴 Second candle → bearish engulfing candle
- 🔴 Third candle → another bearish candle closing lower
👉 Confirms sellers are taking control.
💡 Psychology Behind Three Outside Down
- Buyers dominate initially
- Sellers aggressively reverse momentum
- Third candle confirms bearish pressure
👉 Strong signal that the uptrend may reverse downward.
✅ How to Trade Three Outside Down
- Sell below the third candle’s low
- Stop loss above the pattern high
- Use support zones as targets
⚠️ Common Mistakes to Avoid
- ❌ Ignoring trend context
- ❌ Weak confirmation third candle
- ❌ Trading in sideways markets
- ❌ Not checking volume confirmation
🔗 Three Outside vs Engulfing Pattern
| Pattern | Candles | Strength |
|---|---|---|
| Engulfing Pattern | 2 | Strong |
| Three Outside Up/Down | 3 | Stronger (with confirmation) |
👉 The third candle makes the reversal signal more reliable.
🚀 Pro Tips for Better Accuracy
- Combine with Support & Resistance
- Use RSI divergence for confirmation
- Look for high volume on 2nd & 3rd candle
- Trade with higher timeframe trend analysis
The Three Outside Up and Three Outside Down patterns are highly reliable reversal signals because they combine an engulfing candle with confirmation momentum.
👉 These patterns are especially useful for traders looking for high-confidence reversal setups.