Three inside up patterns are bullish patterns. They are a four candlestick pattern that takes place near support levels. The first candlestick is a larger bearish candlestick. The next three candlesticks are bullish and each have a candlestick close above the previous one. Look for price action to rise above the fourth candle and hold for bullish continuation.
A three inside up pattern consists of four candlesticks that form near support levels. The first candle is bearish, the second is a spinning top or doji that forms a bullish harami, and the other two candles form higher highs. Typically, the fourth candle forms a bullish reversal pattern.
These patterns are made up of three candlesticks. It also contains another bullish reversal pattern known as the bullish harami. A bullish harami pattern is a two candlestick pattern. In other words, the three inside up pattern is a bullish harami pattern with a confirmation candle.
Three inside up patterns are three candlesticks patterns. First, a downtrend is needed to be in place; does not have to be a long term one either. Sometimes a short term downtrend will be all that is needed.
Second, a bearish candlestick forms in keeping with the downtrend. It should have a long real body but of course patterns are not always perfect.
Third, get a small candle the second day that forms inside the first candle; known as a bullish harami. Harami is the Japanese word for pregnant; looks like pregnant lady. Lastly, is the confirmation candle. This should be a bullish candlestick. This candle should close above the candle from the previous day.
In essence, traders may trust the three inside up pattern more than a bullish harami because of that confirmation candle. It is easier to trust because of the assurance it is given. Three inside up patterns are a pretty accurate signal of a reversal to the upside.
Because of this, traders may wait for even more confirmation before placing an order. This can occur in the form of a gap up the fourth day or another big bullish candlestick.
The longer real body of the second candle, the stronger the reversal. Likewise, the longer the real body of the confirmation candle the more strong and secure the reversal.
How to Trade Three Inside Up Patterns
- Watch for 1st bearish candlestick to form
- Next, watch for 2nd smaller spinning top or doji candlestick to form
- Then, watch for 3rd & 4th candlesticks to form higher highs
- Traders take a long position once price breaks above the 4th candlestick
- Place stop below the 4th candle
- Some traders take a short position once price breaks below 4th candle
- Then place stop above the 4th candle