Three Inside Down Definition, Formation, Trading, Advantages and Disadvantages

Three Inside Down: Definition, Formation, Trading, Advantages and Disadvantages

The three inside down pattern is a bearish reversal signal consisting of three candlesticks. It marks a shift from an uptrend to a bearish trend. The first candle is a long bullish one, followed by a smaller bearish candle inside it, and the third candle closes below the second.

This pattern indicates a loss of dominance by buyers, leading to a bearish trend. It’s a bearish harami pattern, resembling a pregnant woman (harami in Japanese means pregnant). The third candle acts as a confirmation of the bearish reversal. Traders often take short positions after the appearance of the third candle.

Advantages include easy identification and suitability for short-term trading. However, it’s common, leading to less reliability. Disadvantages involve signaling small reversals and occasional false signals, emphasizing the need for additional indicators.

What is the Three Inside Down candlestick pattern?

Traders should pay attention to the confirmation candlestick after the three inside-down patterns. The third bearish candle confirms the trend reversal, and traders often initiate short positions at the end of the day when this confirmation occurs.

What is the Three Inside Down candlestick pattern?

While the pattern is relatively easy to spot and suitable for short-term and intraday trading, it has drawbacks. The pattern is common, leading to false signals or small and insignificant reversals. To enhance reliability, traders often use the three inside down pattern in conjunction with other technical indicators for a more comprehensive analysis.

How is Three Inside Down Candlestick Formed?

In the formation of a three inside down candlestick pattern, the initial bullish candlestick signifies the dominating position of buyers. The shift occurs with the second candlestick, which is fully contained within the body of the first, marking a change in market sentiment as it closes below the prior candlestick. Sellers start gaining an edge.

How is Three Inside Down Candlestick Formed

The third candlestick, a bearish confirmation, solidifies the upcoming bearish trend reversal. This pattern resembles a bearish harami, with the first two candlesticks forming the harami pattern. The harami is succeeded by the bearish confirmation candlestick, indicating the shift in market dynamics. Investors and traders recognize this pattern through the distinctive structure of the candlesticks.

What does Green Three Inside Down Candlestick tell?

A green three-inside-down candlestick is a type within the three-inside-down pattern. It has a bullish second candlestick that sits entirely inside the first. This signals a weakening bullish trend, with sellers gaining control. In this variation, the decrease in the range between open and close prices suggests waning buyer interest. Sellers are gaining strength, and the pattern serves as a bearish signal for a potential trend reversal. Traders may consider adjusting their strategies accordingly.

How Important Is the Color of the Three Inside Down Candlestick?

The color of the three inside down candlestick conveys crucial information about price action and market volatility. A green candlestick suggests a gradual shift in price action, indicating a slower transition to a bearish trend. On the other hand, a red candlestick signifies a more volatile market, with rapid price fluctuations. Traders and investors use the color cues to gauge the intensity and speed of the market’s movement.

When does Three Inside Down Candlestick happen?

The three inside down candlestick emerges as a reversal pattern at the conclusion of a bullish trend. It unfolds with an initial bullish candlestick, followed by a second candlestick opening within its body but closing lower, signaling a shift in market sentiment. The third candlestick solidifies the bearish reversal by closing below its predecessor. This pattern denotes a transition from bullish to bearish trends, providing traders with crucial insights for strategic decision-making. The timing of the three inside down candlestick is pivotal, occurring as the climax of the bullish phase, guiding investors towards anticipating and navigating impending market shifts.

How often does Three Inside Down Candlestick occur?

The three inside down candlestick pattern is a frequent occurrence, manifesting before both short-term fluctuations and extended trend reversals. Its regular appearance on price charts makes it easily identifiable, particularly at the culmination of bullish trends, signaling the onset of potential bearish reversals. Traders often encounter this pattern, providing them with valuable insights into market dynamics and the possibility of impending trend changes.

How to read Three Inside Down Candlestick in Technical Analysis?

Reading a three inside down candlestick in technical analysis tr involves analyzing price charts, identifying the pattern, and confirming it. Traders use online platforms for chart analysis, examining market sentiment, trends, and price direction. The chart of Goldman Sachs shares illustrates this analysis.

How to read Three Inside Down Candlestick in Technical Analysis

Identifying the three inside down pattern involves recognizing a long bullish candlestick, followed by a second candlestick fully within the first, and a third bearish candlestick closing below the second.

Confirmation occurs with the third candlestick closing below the second, affirming the bearish reversal. The chart provides a visual guide to this process.

​​How accurate are the Three Inside Down Candlesticks in Technical Analysis?

Financial analyst Thomas N. Bulkowski notes a 63% accuracy rate for three inside down candlestick patterns. However, relying solely on this pattern isn’t reliable. Traders often combine it with other indicators like Moving Averages, RSI, and Fibonacci for enhanced accuracy. The pattern is generally favored for short-term and intraday trading scenarios.

When is the best time to Trade using Three Inside Down Candlestick?

The optimal time to trade using the three inside down candlestick pattern is after the appearance of the third candlestick. This serves as the confirmation candlestick, signaling an impending bearish trend reversal. Commonly, traders employ shorting as a strategy, taking short positions at the day’s end when the third confirmation candlestick materializes.

How to Trade with Three Inside Down Candlesticks in the Stock Market?

Trading with the three inside down candlestick pattern in the stock market involves a strategic approach comprising five essential steps. Initially, traders need to identify the pattern on a stock chart by recognizing a long bullish candlestick, followed by a smaller bullish or bearish candlestick entirely engulfed by the first one, and culminating in a long bearish candlestick that closes below the low of the second candlestick. This distinctive triple candlestick pattern is easily discernible on price charts.

How to Trade with Three Inside Down Candlesticks in the Stock Market

Once identified, the next crucial step is to exercise patience and wait for confirmation. The confirmation is derived from the third candlestick, invariably a bearish one that concludes below the close of the preceding candlestick. This confirmation signals an imminent bearish trend reversal, prompting traders to position themselves accordingly.

Risk management is paramount in trading, and setting a stop loss constitutes the third step. A stop loss is an automatic sell order triggered when the price hits a predetermined level. The placement of the stop loss depends on the trader’s risk tolerance, with options ranging from below the first to the third candlestick.

The fourth step involves profit-taking strategies. Traders typically enter short positions towards the end of the third candlestick or at the onset of the subsequent one to capitalize on potential gains.

Lastly, continuous market monitoring is crucial. Traders must stay attuned to overall market trends and sentiments to gauge the accuracy of signals generated by the three inside down candlestick pattern. As these patterns emerge at the culmination of bullish trends, signaling impending bearish reversals, combining them with other technical indicators like moving averages or the RSI enhances accuracy and reliability in decision-making.

Where is the Three Inside Down commonly used?

The Three Inside Down candlestick pattern finds widespread application as a key technical analysis tool across various financial markets, encompassing stocks, bonds, forex, and commodities. Traders interpret its signals based on individual investment goals and preferences.

Is the Three Inside Down in an Uptrend a Sell Signal?

In an uptrend, the Three Inside Down signals a reversal, indicating potential price decline. Investors choose to interpret it as a sell or hold signal, depending on their strategy and timeframe. Long-term holders may retain securities during the reversal, while short-term traders often opt to sell.

What are the advantages of the Three Inside Down Candlestick Pattern?

The Three Inside Down patterns offer advantages in easy identification, especially for beginners on price charts. Recognizable by its distinct shape—long bullish candlestick, smaller second one, and long bearish candlestick—it aids swift spotting on charts. Another key advantage lies in its suitability for short-term and intraday trading, making it valuable for traders focusing on minor trend changes. Moreover, the pattern complements other technical indicators like moving averages, Fibonacci retracement, and Relative Strength Indicator. Its versatility extends to various financial markets, including stocks, bonds, forex, and commodities.

What are the disadvantages of Three Inside Down Candlestick?

The primary disadvantage of the three inside down patterns lies in their reliability, often predicting short-lived reversals. Two key drawbacks are:

  1. Tendency to signal small or insignificant reversals: The pattern frequently indicates brief reversals, more suitable for short-term and intraday trading.
  2. Tendency to produce false signals: Relying solely on the three inside down pattern may lead to losses due to false signals.

Traders should use additional indicators to cross-check signals, assess market conditions, and distinguish between the three inside down and three inside up patterns.


Additionally, the pattern’s common occurrence can lead to false signals, posing challenges for traders relying solely on it. Its susceptibility to producing short-lived trends emphasizes the need for caution.

Investors must exercise prudence, considering the pattern’s limitations. Integrating the three inside down pattern with other technical indicators enhances signal accuracy, minimizing the risk of losses. Careful market analysis and awareness of potential false signals are essential for successful trading with this pattern. It is crucial to differentiate between the three inside down and three inside up patterns to make well-informed trading decisions.

What is the Opposite of Three Inside Down Candlestick?

The three inside up candlestick pattern is a bullish reversal indicator formed by three consecutive candles. The pattern begins with a long bearish candle, followed by a smaller bullish or bearish candle fully contained within the first candle’s body. The pattern concludes with a long bullish candle that closes above the high of the middle candle. Traders interpret the three inside up pattern as a shift in market sentiment from bearish to bullish, suggesting potential upward price movement.

What is the Opposite of Three Inside Down Candlestick?

Similar to its bearish counterpart, the three inside down pattern, the three inside up pattern is commonly used in technical analysis across various financial markets, including stocks, bonds, forex, and commodities. Traders often combine this pattern with other technical indicators to enhance its reliability and accuracy. However, like any trading signal, it is essential to consider market conditions, risk management, and additional confirmation before making trading decisions based solely on the three inside up candlestick pattern.

What Candlestick Pattern is Similar to Three Inside Down Candlestick?

The three outside down pattern is a candlestick pattern that closely resembles the three inside down pattern in its bearish trend reversal signal. In the three outside down pattern, the sequence begins with a bullish candlestick, followed by a significantly larger bearish candlestick that engulfs the entire range of the first candlestick. The pattern concludes with a third bearish candlestick, closing at a price lower than that of the second candlestick.

While both the three inside down and three outside down patterns indicate a bearish reversal, the key distinction lies in the second candlestick. In the three inside down pattern, the second candlestick is fully contained within the body of the first, while in the three outside down pattern, the second candlestick engulfs the entire length of the first candlestick. These patterns are valuable tools for traders seeking signals of potential trend reversals in the financial markets.

Is the pattern of the Three Inside Down a bullish reversal?

No, the pattern of the three inside down is not a bullish reversal; it is a bearish reversal pattern. This candlestick formation takes shape at the conclusion of a bullish trend, indicating an imminent shift towards a downward reversal in the market.

What is the difference between Three Inside Down and Three Inside Up?

AspectThree Inside DownThree Inside Up
DirectionIndicates a bearish trend reversal.Indicates a bullish trend reversal.
Candlestick FormationComprises a long bullish candlestick, a second candlestick contained within the first, and a long bearish candlestick closing below the second.Comprises a long bearish candlestick, a second candlestick contained within the first, and a long bullish candlestick closing above the second.
Use in Technical AnalysisUsed to identify potential bearish reversals.Used to identify potential bullish reversals.

These patterns are essential tools in technical analysis, offering insights into potential changes in market trends.