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Three Outside Up or Down In A Nutshell
First, as indicated, identify that the market you are observing is in a bearish trend. Secondly, you want to locate a large bodied bearish candle that opened high but ended the period substantially lower. Then the next candle needs to open around the close of the previous large candle and close higher, but within the body of the previous. The third candle then has to be opened within the body of the previous but then close above the initial candlestick that started the pattern.
Candlestick patterns are a useful way to help locate trends that may reverse, and the Three Inside Up or Down is one of those. There are a few rules and the first one is that market must be in a bearish trend with the anticipation of a trend change because this pattern helps to indicate a potential change in the current market.
Closer Look at Three Outside Up or Down
How to read this is first, not how large the beginning candle is because a large drop in price is typically a reaction to something. A component you may want to monitor is volume, as this can tell you if there is a spike in interest of this particular market. The next two candles and their volume is important as well because you want to volume to increase as price reverses because this means there is power behind the move.
Certainly you can bring in other tools such as momentum indicators or volume indicators. Everybody has their own way of investing and trading and this pattern is used to help in identifying potential shifts in the market. With that, be sure to test it out first before adding it to your everyday setup. These are not one hundred percent accurate but can certainly help in grabbing your intention in an ever changing market.
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