Three Outside Up Patterns
Three outside up patterns are bullish patterns. They are a four candlestick pattern that takes place near support levels. The first candlestick is a 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 continuation upwards.
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What Are Three Outside Up Patterns?
A three outside up pattern consists of four candlesticks that form near support levels. The first candle is bearish, the second is a bigger bullish candle that forms a bullish engulfing, and the other two candles form higher highs. Typically, the fourth candle forms a bullish reversal pattern.
The three outside up is made up of another bullish reversal pattern known as the bullish engulfing pattern. The bullish engulfing pattern is a two candlestick pattern. When you add a third candle, you get a different pattern with the same meaning.
Three outside up patterns form over a span of three days. The first two days form another bullish reversal pattern and the third day confirms it.
You need a trend in place to be able to reverse it. For the three outside up pattern there should be a downtrend in place. The downtrend may not be a long term one. Sometimes a couple days is all it needs.
Then the first candlestick forms. It’s a small bearish candle that continues with the current downtrend.
Next a second candlestick forms. This one is a long bullish one. It engulfs the real body of the first candle. Which is known as the bullish engulfing pattern. In other words, it opened lower and closed higher than the previous candle.
Lastly, the third candlestick is another bullish candlestick. This one confirms the new trend that’s in place.
Three outside up patterns are telling you that the bulls are done letting the bears have control. While the first candlestick of the pattern is apart of the downtrend in place, change is coming.
The second day the bulls come in and take the bears out. They completely engulf the previous day but it doesn’t start the day that way. It opens lower than the previous day making you believe the trend will continue. The boom, the bulls come in and take over.
Next you get the confirmation. This in turn, make the reversal that much more likely. Traders can get in on the second day believing the two day reversal pattern.
Other traders may wait for the third day to get confirmation. They don’t want to get trapped in a fake out. Although, the more of a real body the second candle has, the stronger the reversal.
How to Trade Three Outside Up Patterns
- Watch for 1st smaller bearish candlestick to form
- Next, watch for 2nd bigger bullish candlestick to engulf 1st bearish one
- 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