Three inside down patterns are bearish patterns. They are a four candlestick pattern that takes place near resistance levels. The first candlestick is a larger bullish candlestick. The next three candlesticks are bearish and each have a candlestick close below the previous one. Look for price action to fall below the fourth candle and hold for continuation downwards. Watch our video on how to identify and trade three inside down patterns.
What Is a Three Inside Down Pattern & How to Identify These Patterns?
A three inside down pattern consists of four candlesticks that form near resistance levels. The 1st candle is bullish, the 2nd is a spinning top or doji that forms a bearish harami, and the other 2 candles form lower highs. Typically, the 4th candle forms a bearish reversal pattern.
These patterns are three candlestick patterns found on stock charts. The three inside down pattern is a bearish reversal pattern. This is one of many reversal patterns used to trade. Watch our video above to learn more about how to trade these patterns.
Two candlestick patterns can also be used to make three candlestick patterns. The 3 inside down is an example of this. It’s made up of a second reversal pattern. This pattern is known as a bearish harami.
Bearish harami patterns are made up of two candlesticks. When you add a third confirmation candle, it changes the pattern. In this case, to a three inside down pattern.
Stock charts are made up of individual candlesticks. These candlesticks alone can tell a story. When you group them together, you get an even bigger picture. Trading is filled with hundreds of opportunities.
It’s up to us as traders to find them. That’s were candlestick patterns come in. They help us to gauge emotion as well as future price movement. If you need more stock training then take our free stock courses on our website.
Basics of Three Inside Down Patterns
Three inside down patterns are made up of three candlesticks and a second pattern. If you’re looking for this pattern, there needs to be an uptrend in place. You can’t have a reversal without something to reverse (bookmark our stocks list page which is updated daily).
You should see a tall bullish candlestick. This candle is a part of the current trend that’s in place. The bulls are in control and at the moment, they still are.
Then you get a smaller candlestick. It should be a bearish candlestick and the real body should be contained inside the body of the first candle. This forms the bearish harami pattern. Harami is the Japanese word for pregnant. Hence the shape of this pattern. It looks like a pregnant woman.
Lastly, the third candle needs to be another bearish candle. It should be longer than the previous one. It should also close lower than the previous day. Read our post on bearish candlesticks.
Three inside down patterns are basically bearish harami patterns that have been confirmed. Because of the confirmation candle, traders can be more likely to trust this pattern.
We teach how to trade candlesticks in our trading rooms. Check out our trading service to learn more.
Technicals of Three Inside Down Patterns
The market is a tug of war between the bulls and the bears. Neither side wants to other to gain control. One side may get control for a time but then the other side comes in to stop them (try our stock picks free for 14 days).
In fact, this is how we get Japanese candlesticks patterns. Three inside down patterns are no different. They form because the bears don’t want the bulls to be in control any longer.
Three inside down patterns are pretty accurate because they’re confirming another reversal pattern. Even though this is a pretty solid pattern, traders may wait for even more conformation.
We know that patterns break down all the time. Traders may wait for a gap down or a second strong bearish candle the fourth day before getting in (bookmark our penny stocks list and stock watch lists pages, which are updated daily).
Small Patterns Form Large Patterns
Patterns form when you begin looking at the candlesticks together. Large patterns such as ascending triangle patterns as well as rising wedge patterns form. That can affect the outcome of smaller patterns.
You then have the patterns like head and shoulder patterns, V bottom patterns and inverted cup and handle patterns that form. Bullish and bearish patterns form within each other. A smaller bearish pattern may be forming inside a large bullish one. Hence the importance of knowing and seeing patterns.
Three inside down patterns are small patterns. These make up the larger patterns. This is also why there’s breakdowns in patterns all the time. Know your style of trading and get in and out quickly if a pattern is breaking down. Take our candlestick reversals course.
How to Trade Three Inside Down Patterns
- How to trade three inside down patterns:
- Watch for 1st bullish candlestick to form
- Next, watch for 2nd smaller spinning top or doji candlestick to form
- Then, watch for 3rd & 4th candlesticks to form lower highs
- Traders take a short position once price breaks below the 4th candlestick
- Place stop above the 4th candle
- Some traders take a long position once price breaks above 4th candle
- Then place stop below the 4th candle
The Bottom Line
3 inside down patterns are bearish reversal patterns that house a bearish second reversal pattern. The confirmation the three inside down pattern gives is one traders can find appealing.
Studying the different reversal patterns as well as continuation patterns are going to make you a successful trader. Making that effort will never be a waste of time and ultimately make you confident in the way you approach trading. In fact, that’s all you can ask for. Take our free online trading courses.