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 has a candlestick close above the previous one. Look for price action to rise above the fourth candle and hold for a bullish continuation.
What Is a Three Inside Up Pattern?
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 consist 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 Basics
Three inside up patterns are a type of candlestick pattern. First, a downtrend must be in place; it does not have to be long-term 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 patterns are not always perfect.
Third, get a small candle on the second day that forms inside the first candle, known as a bullish harami. Harami is the Japanese word for pregnant; it resembles a pregnant woman. Lastly, there 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 patterns more than a bullish harami due to the 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.
As a result, traders may wait for even more confirmation before placing an order. This can occur as a gap up on the fourth day or another big bullish candlestick.
The longer the real body of the second candle, the stronger the reversal. Likewise, the longer the real body of the confirmation candle, the stronger and more secure the reversal.
Three Inside Up Pattern Trading Strategy
- Watch for 1st bearish candlestick to form.
- Next, watch for the 2nd smaller spinning top or a doji candlestick to form.
- Then, watch for 3rd & 4th candlesticks to form higher highs.
- Traders take a long position once the price breaks above the 4th candlestick.
- Place a stop below the 4th candle.
- Some traders take a short position once the price breaks below the 4th candle.
- Then place a stop above the 4th candle.
Use proper risk management techniques when trading a three inside up pattern.
