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.
A three inside down pattern consists of four candlesticks that form near resistance levels. The first candle is bullish, the second is a spinning top or doji that forms a bearish harami, and the other two candles form lower highs. Typically, the fourth candle forms a bearish reversal pattern.
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 a third confirmation candle is added, it changes the pattern. In this case, to a three inside down pattern.
Three inside down patterns are made up of three candlesticks and a second pattern. If looking for this pattern, there needs to be an uptrend in place; cannot have a reversal without something to reverse.
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 a smaller candlestick appears; 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; the shape of this pattern 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.
Three inside down patterns are basically bearish harami patterns that have been confirmed. Due to the confirmation candle, traders can be more likely to trust this pattern.
Three inside down patterns form because the bears don’t want the bulls to be in control any longer
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
They are pretty accurate because they are confirming another reversal pattern. Even though this is a solid pattern, traders may wait for even more confirmation. Three inside down patterns are small patterns. These make up the larger patterns.