- Sentiment: Bullish
- No. of candles: 3
- Direction: Reversal
What Is The Three Outside Up Japanese Candlestick Pattern?
The Three Outside Up pattern is a bullish reversal pattern that typically forms after a downtrend or during a period of market consolidation.
The Japanese candlestick pattern consists of three candles.
The first candle is a bearish candle, indicating that sellers are in control.
The second candle is a bullish candle that opens below the close of the first candle and closes above its open, engulfing the first candle and forming a bullish engulfing pattern.
The third candle is another bullish candle that closes higher than the second candle, confirming the bullish reversal.
What Is The Psychology Behind The Bullish Three Outside Up Pattern?
The Three Outside Up pattern reflects a shift in market sentiment from bearish to bullish.
Initially, the bears are in control, pushing the price lower with the first bearish candle.
The appearance of the bullish engulfing pattern (second candle) suggests that buying pressure has increased significantly and has overcome the selling pressure, hinting at a potential trend reversal.
The third bullish candle, which closes higher than the second candle, further indicates that buyers have taken control and are driving prices higher, potentially leading to a bullish trend reversal.
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How To Trade The Three Outside Up Reversal Pattern?
To trade the Three Outside Up pattern, wait for confirmation by the third candle.
The buy trigger occurs when the third bullish candle closes above the high of the second candle, confirming the pattern.
Place a stop loss order below the low of the first candle or the low of the second candle, depending on your risk tolerance, to protect against potential false breakouts or reversals.
As the price moves in your favor, consider using trailing stops or other risk management techniques to lock in profits and minimize potential losses.
Additional Tips
While the Three Outside Up pattern can be a reliable bullish reversal signal, it is essential to use it in conjunction with other technical indicators and chart patterns to confirm the trend change.
Additionally, be aware of the overall market context and consider factors such as support and resistance levels, as well as the strength of the prevailing trend.
Keep in mind that no single pattern can guarantee a trend reversal, and proper risk management is always necessary.
Continue to learn about Japanese candlesticks through books, such as Steve Nison’s “Japanese Candlestick Charting Techniques” and “Beyond Candlesticks.”
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