How to Identify & Trade 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. Watch our video on how to identify and trade three outside up patterns.

What Is a Three Outside Up Pattern & How to Identify These Patterns?

A three outside up pattern consists of four candlesticks that form near support levels. The 1st candle is bearish, the 2nd is a bigger bullish candle that forms a bullish engulfing, and the other 2 candles form higher highs. Typically, the 4th candle forms a bullish reversal pattern.

These patterns are three candlestick patterns found on stock charts. The three outside up pattern is a bullish reversal pattern. Watch our video above to learn more about how to trade them. 

The 3 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.

Charts are made up of candlesticks mapping out the battle of the bulls and the bears. This allows traders to be able to see how others are feeling about a particular stock or even the market.

Price movement coupled with greed and fear affect supply and demand. Thanks to Japanese candlesticks patterns, we can get a sense of price movement and trend (try our stock picks service free).

Basics of Three Outside Up Patterns

three outside up patterns

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. Read our post on bearish candlesticks to learn more about them.

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. Read our post on bullish candlesticks to learn their significance.

Technicals of Three Outside Up Patterns

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.

We teach how to trade three outside up candlesticks on our live daily streams (bookmark our penny stocks list and stock watch lists pages, which are updated daily).

Larger Patterns

three outside up patterns

Three outside up patterns break down all the time. Just because a pattern sets up doesn’t mean it’s going to follow through. This is because of the larger patterns.

Triangles rule the market. It’s so important that you’re able to spot ascending triangles patterns as well as descending triangle patterns. Those formations can affect or confirm other patterns such as V bottom patterns or double top patterns.

Bullish and bearish patterns form within each other all the time. One of those patterns ultimately takes control. That’s why you need to be able to see the big and the small patterns.

Two and three candlestick patterns like three outside up patterns and bullish engulfing patterns help to make up the big patterns. When you’re able to see patterns, your trading becomes so much better (bookmark our stocks lists page which is updated daily).

Being able to find support and resistance is a huge part of technical analysis and trading in general. That’s why candlesticks are so important. Without them, moving averages don’t mean anything.

How to Trade Three Outside Up Patterns

  • 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

Candlesticks coupled with moving averages make support and resistance a lot easier to see. You’ll notice when you have them together, that candlesticks sort of obey moving average lines.

If they get to far away from them, they come back. Traders also seem to obey moving averages. They often won’t let price break above or below certain moving averages such as the 200 SMA.

Take our candlestick reversal patterns course.

Summary

Three outside up patterns are bullish reversal patterns. Traders may take this more seriously as it’s a confirmation of a bullish engulfing. Patterns are an important part of trading as well as technical analysis. Get confirmation on moves and make sure you have good risk management. Take our free online trading courses for beginners.

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