Technical Classroom: How to read Three Outside Up & Three Outside Down candle stick patterns

Chandan Taparia Motilal Oswal

Technical Session: Three Candlestick Patterns

Today, we will be discussing about Three Outside Up and Three Outside Down candle stick patterns.

Introduction:

Three Outside Up candlestick chart pattern is a bullish trend reversal pattern of strong reliability, while Three Outside Down candlestick chart pattern is a bearish trend reversal pattern

1. Three Outside Up (bullish pattern):

Three outside up is formed at the downtrend or at possible support. This is a three day pattern and is a further extension of the bullish engulfing candlestick pattern.

On Day 1, a smaller bearish candlestick is formed in continuation of the downtrend. On Day 2, a larger bullish candlestick is formed, which completely covers or engulfs the body of the bearish candlestick formed on Day 1. On Day 3, again a bullish candlestick is formed, which ends higher than the second day's candlestick.

2. Three Outside Down (bearish pattern): This pattern is formed at the uptrend or possible resistance and is just the opposite of the Three Outside Up pattern. This three-day candlestick pattern is a further extension of the bearish engulfing candlestick pattern.

On Day 1, a small bullish candlestick is formed, which is the continuation of the uptrend. On Day 2, a larger bearish candlestick is formed such that the body of the bearish candlestick completely overshadows or engulfs the body of the bullish candlestick formed on Day 1. On Day 3, again a bearish candlestick is formed, which closes below the second day's candlestick.

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