Pattern 3 Outside Down and 3 Outside Up

The terms 3 Outside Down and 3 Outside Up refer to three-candle reversal patterns. For a pattern to form, three candles must form in a specific sequence, indicating that the current trend has lost momentum and may signal a reversal of the existing trend. Specifically, a pattern forms when a bearish candle (which closes lower than it opened) is followed by two instances of a bullish candle (which closes higher than it opened), or vice versa.

Key Features:

• The 3 Outside Down/Up patterns are three-candle patterns often signaling a trend reversal.
• 3 Outside Down and 3 Outside Up patterns are characterized by one candle immediately followed by two candles of the opposite color.
• Each aims to use market psychology to understand short-term mood changes.

3 Outside Up

This bullish candlestick pattern has the following characteristics:

1. The market is in a downtrend.
2. The first candle is bearish.
3. The second candle is bullish with a long body and completely encompasses the first candle.
4. The third candle is bullish with a higher close than the second candle.

3 Outside Down

This pattern variation is a bearish candlestick model with the following characteristics:

1. The market is in an uptrend.
2. The first candle is bullish.
3. The second candle is bearish with a long body that fully encompasses the first candle.
4. The third candle is bearish with a close lower than the second candle.

The first candle signifies the beginning of the end of the prevailing trend as the second candle engulfs the first candle. The third candle then signifies an acceleration of the reversal.

See Also

Pattern 3 Inside Down and 3 Inside Up