The three inside up candlestick pattern is a powerful indicator in technical analysis, marking a shift from a bearish to a bullish trend in the stock market. It is formed by a sequence of three distinct candlesticks. The pattern begins with a large-bodied bearish candlestick, indicating a downtrend, followed by a smaller bullish candlestick that is engulfed by the first. This shift signals the market’s change from bearish to bullish momentum. The third candlestick, also bullish, starts at or above the closing price of the second and continues to move upward, closing above both the first and second candlesticks. This confirms the trend reversal. The pattern is recognized as a ‘three inside up’ when the third candle opens at least halfway above the bearish candle.

For traders, this pattern is essential for formulating strategies around entry and exit points in the market. It suggests a favorable time for traders to enter long positions, expecting the upward trend to continue. The formation of the third candlestick particularly discourages short sellers, opening opportunities for new buyers to engage in the rising market. The pattern’s completion implies a good time for traders to buy securities, anticipating further price increases to new highs.

What is the three inside candlestick pattern?

The three inside up candlestick pattern is a key indicator in technical analysis, signifying a shift from a bearish to a bullish market trend. It emerges as a clear signal that the downtrend is losing steam and the bulls are poised to take control. This pattern is characterized by a specific sequence of three candlesticks and is only considered complete when these candles appear in a particular arrangement.

What is three inside up candlestick pattern

To form a three inside up pattern, the market scenario typically shows sellers losing their momentum, signaling a transition of power back to the buyers. This pattern, notable for its triple candlestick formation, appears at the end of a downtrend. The sequence starts with a large-bodied bearish candlestick, indicating that the downward trend is still under bearish dominance. However, this bearish momentum is soon challenged by two consecutive bullish candlesticks, each closing higher than the previous, forming higher highs and higher lows. This configuration suggests that sellers are locking in their profits and exiting, while buyers begin to establish long positions, anticipating an upward move in the market.

How is three inside up candlestick formed?

The formation of the three inside up candlestick pattern, a crucial trend reversal signal in technical analysis, begins with the initial bearish candlestick. This first candle represents a turning point, where sellers start to lose their dominance, paving the way for buyers to gradually take control of the market.

How is three inside up candlestick formed

Initial Bearish Candlestick:

The pattern starts with a bearish candlestick, symbolizing the sellers’ exit from their positions. This candle is indicative of the ongoing downtrend, with sellers still in control but beginning to lose their grip.

The emergence of Bulls:

The second candlestick in the pattern is a bullish one. Notably, this candle is still engulfed by the initial bearish candlestick, meaning its high and low points remain within the range of the first candle. This configuration implies that buyers are beginning to resist the weakening selling pressure and are starting to gain influence in the market. However, at this stage, the bulls have not yet overtaken the bears completely.

Strong Bullish Takeover:

The third candlestick is a key component in confirming the three inside up patterns. For this candlestick to validate the pattern, it must open at least halfway above the body of the first bearish candlestick and must close above the upper wick of this initial candlestick. The opening of the third candlestick with a significant gap up, driven by an influx of bullish activity, is a clear indication that the bulls have now fully taken over the market. This shift is bolstered as more buyers enter long positions, sensing the dwindling presence of sellers.

How important is the color of the three inside up candlesticks?

The color of the candles in a three inside up pattern is crucial for assessing trend reversal strength. This pattern typically includes a red candlestick followed by two green ones. The red candlestick reflects the existing downtrend’s intensity, while the subsequent green candlesticks signal the emerging strength of an anticipated uptrend.

  1. Red Candlestick – Indicator of Downtrend: The initial red candlestick in the pattern reveals the force of the current downward movement. Its presence is vital for understanding the depth of the bearish sentiment in the market.
  2. Green Candlesticks – Uptrend Signals: The two green candlesticks that follow are key indicators of a potential bullish shift. Their color signifies a changing market sentiment, from bearish to bullish, suggesting a reversal in trend direction.
  3. Color as a Strength Gauge: The progression from the red to green candlesticks offers insights into the trend’s momentum. It helps traders gauge how robustly the trend reversal might unfold.
  4. Pattern Over Color: Although the colors provide valuable information, the overall pattern structure holds more significance. The sequence and formation of the candles take precedence in determining the reliability of the trend reversal signal.
  5. Combined Analysis for Accuracy: For more effective predictions, the colors should be analyzed alongside other technical analysis tools. This comprehensive approach enhances the accuracy of forecasting future price movements.

In summary, the colors in a three inside up candlestick pattern play a supportive role in interpreting market dynamics, aiding traders in making informed decisions about the strength and potential of the emerging uptrend.

When do three inside up candlesticks happen? 

The three inside up candlestick pattern typically emerges at a downtrend’s conclusion. It signals a shift from bearish to bullish trends. Initiated by a bearish candlestick with a substantial body, this pattern marks the end of a pronounced downtrend. Its completion requires two following bullish candlesticks.

  1. Initial Bearish Candlestick: This long-bodied candlestick indicates the peak of a strong downtrend, suggesting bearish market control.
  2. Emergence of Bullish Candlesticks: The pattern is only considered complete when two bullish candlesticks appear after the initial bearish one. The first bullish candlestick, often shorter, hints at the weakening of the downtrend’s impact.
  3. Final Bullish Candlestick: The crucial second bullish candlestick opens above the midpoint of the bearish candlestick, signaling the onset of an uptrend.
  4. Indicator for Market Shift: The pattern’s completion acts as a cue for sellers to exit, acknowledging their diminishing control. Simultaneously, it signals buyers to commence long positions, anticipating a bullish market phase.

In essence, the three inside up candlestick pattern is a reliable indicator for traders to identify the transition point from a dominant bearish trend to a burgeoning bullish trend.

How often does three inside up candlestick occur?

The three inside up candlestick pattern is a common occurrence in the stock market, often presenting a challenge for traders due to its frequency. It appears in around 60% of day trades, frequently marking the end of downtrends. However, its regular appearance can sometimes lead to confusion among traders. Not all instances of this pattern signify a strong trend reversal, with some only indicating a weak shift in market direction.

This frequency makes it tricky for traders to discern which occurrences are significant and which ones to disregard. The market’s constant fluctuation between bearish and bullish states often leads to this pattern, along with its counterpart, the three inside down pattern, signaling these shifts. Therefore, traders should focus more on the strength of the trend reversal indicated by the three inside up patterns, rather than its mere presence. This discernment is crucial in making informed decisions in a market where this pattern is a prevalent indicator.

How to read three inside up candlesticks in technical analysis?

Reading the three inside up candlestick patterns in technical analysis involves two primary considerations: assessing the magnitude of the reversal and interpreting it as a signal for market entry and exit. This pattern is widely recognized as an indicator of a shift from a bearish to a bullish trend, with the capacity to hint at the reversal’s intensity. Comprising three candlesticks, the initial bearish candle indicates the end of a downtrend, followed by two bullish candles. The engulfment of the first bullish candle by the bearish one, and the subsequent higher opening of the third candle, help gauge the strength of the impending bullish move. A larger gap between the closing of the second and the opening of the third candle suggests a more significant trend reversal.

How to read three inside up candlestick in technical analysis

In terms of market dynamics, the appearance of this pattern signals sellers to exit and buyers to enter. The bearish start of the pattern, marked by a long-bodied candle, suggests waning seller confidence and profit-booking. This is followed by a gradual takeover by buyers, confirmed by the final bullish candle. Analysts can thus interpret this as a shift in control from sellers to buyers, signaling a potential long position for traders. By combining this insight with other technical indicators, traders can better anticipate the extent and duration of the upcoming price movement.

How accurate are the three inside up candlesticks in technical analysis?

The accuracy of the three inside up candlestick patterns in technical analysis, though commonly observed in the market, averages around 65 percent, varying based on several factors. These include:

  1. Duration of the Trend: This refers to the longevity of the trend following the pattern’s formation. Its strength, indicated by the third candlestick’s gap-up opening, offers clues about how long the trend might last. Generally, the longer the timeframe, the more reliable the pattern.
  2. Time Frame of Candlestick: This aspect concerns the period each candlestick represents. In the case of the three inside up patterns, a common setting is a 5-minute interval. The chosen interval is crucial for accuracy, as the pattern frequently appears and may alter mid-formation. Selecting the appropriate interval helps in capturing a more precise trend reversal.
  3. Market Context: This encompasses the overall market conditions and investor sentiment. Factors such as the country’s economic health, exchange rates, and even social and political environments play a role. In anomalous market contexts, the pattern may lose its effectiveness.

It’s important to note that no stock market pattern, including the three inside up, can guarantee accuracy solely based on its formation. The market’s inherent variability means that deviations from expected patterns are common. To enhance reliability, integrating additional technical tools and maintaining a stop-loss strategy to minimize potential losses is advisable. This multi-faceted approach can help in making more informed trading decisions.

When is the best time to trade using three inside up candlesticks?

The best time to trade using the three inside up candlestick pattern, signaling a shift from bearish to bullish, varies for buyers and sellers. Traders must first confirm the pattern’s complete formation, as the three inside up often break formation midway, failing to secure bullish control. For buyers, the optimal trading moment comes after the third candle’s formation, the bullish one. They should assess the candlestick’s body length; if it’s short, they might consider waiting for a stronger bullish signal.

The gap between the third candle’s opening and the second’s closing can indicate the trend’s potential duration. Sellers, conversely, should view the pattern’s emergence, particularly the initial bearish candle with a long body, as a cue to exit their short positions. This formation suggests that sellers are capitulating, marking a good time to realize profits. If unable to exit, sellers may wait until post the third candlestick, marking the start of an uptrend, and anticipate a point where buyers’ momentum fades, potentially leading to price declines.

How to trade with three inside up candlestick in the stock market?

Trading with the three inside up candlestick patterns in the stock market involves a strategic approach, starting with accurate pattern identification. Traders should vigilantly watch for this pattern at the end of downtrends. The initial step is spotting a long bearish candlestick, followed by a bullish candlestick that’s engulfed by the bearish one. The pattern solidifies when a third bullish candlestick opens halfway above the bearish candlestick’s body and closes above the second candlestick’s high. However, not every bearish candlestick at a downtrend’s end signals the start of this pattern.

Once the pattern is identified, the next crucial step is confirmation. Traders must ensure the market’s sentiment aligns with the pattern and that a genuine trend reversal is underway. Sometimes, even with the pattern’s formation, the anticipated trend reversal might not occur. Setting an appropriate stop loss is the third critical step. This stop loss is determined based on the trader’s risk tolerance and is typically placed after entering a long position. For instance, if the pattern completes at a security price of Rs 20, a stop loss near this price point can help mitigate risk.

The fourth step is profit booking. Traders should avoid greed and exit their long positions at the target profit level, even if the market continues to rise. Automating the selling process when the target price is reached ensures a timely exit. Finally, monitoring the market post-pattern formation is essential. Traders with a higher risk appetite might consider re-entering with a new long position after booking profits from the initial trade, but only when another reliable pattern forms.

Integrating this five-step approach with other technical tools can enhance trading efficiency with the three inside up patterns. However, it’s important to remember that this process is not infallible. Traders should remain adaptable and adjust their strategies as market conditions evolve.

Where is the Three Inside Up commonly used? 

The three inside up pattern, a vital candlestick configuration, is extensively applied in stock market analysis. Primarily emerging at downtrend conclusions, it signifies seller withdrawal and an impending bullish market phase. This pattern flags the shift from bearish to bullish trends, signaling a pivotal market transition. Traders closely monitor this formation, as it heralds a potential upswing in asset values.

Additionally, its utility extends beyond stocks, finding relevance in foreign exchange and commodities markets. Its universal pattern of three distinct candlesticks allows for straightforward recognition across various market types. This makes the three inside up patterns a crucial tool in technical analysis, aiding traders in identifying and capitalizing on trend reversals in diverse financial arenas.

Is the three inside up in an uptrend a signal to sell? 

The three inside up pattern is not a cue for selling during an uptrend. Instead, it typically emerges after a downtrend, indicating a possible trend reversal. This pattern signals a shift from bearish to bullish conditions. Traders generally adopt a strategy of entering long positions once the pattern is fully formed. It’s important to understand that this pattern does not suggest immediate selling. Rather, it indicates that sellers are likely exiting the market. For those holding short positions, the appearance of this pattern may be a signal to await the next downtrend for potential selling opportunities.

Is the three inside up in an uptrend a signal to sell? 

The three inside up pattern is not a cue for selling during an uptrend. Instead, it typically emerges after a downtrend, indicating a possible trend reversal. This pattern signals a shift from bearish to bullish conditions. Traders generally adopt a strategy of entering long positions once the pattern is fully formed. It’s important to understand that this pattern does not suggest immediate selling. Rather, it indicates that sellers are likely exiting the market. For those holding short positions, the appearance of this pattern may be a signal to await the next downtrend for potential selling opportunities.

What are the advantages of three inside up candlestick patterns?

The three inside up candlestick pattern is a favorite among traders for two standout reasons:

  1. Frequent Appearance: This pattern regularly shows up in the stock market. Traders can easily spot and utilize it, particularly for long positions. Its regularity allows for the development of varied trading strategies.
  2. Trend Reversal Indicator: As a harami pattern variant, it adds a third candlestick, boosting its ability to predict trend reversals. The gap up of the third candlestick signals a strong bullish trend. This feature is invaluable for traders seeking to gauge the reversal’s momentum and make profitable moves.

In summary, the three inside up pattern’s regular occurrence and its sharp insight into trend reversals make it a valuable tool for market success.

What is the opposite of three inside up candlesticks?

The opposite of the three inside up candlestick pattern is the three inside down pattern. While sharing structural similarities, the two patterns have opposing implications for market trends.

The three inside down pattern unfolds after uptrends, signaling a reversal from a bullish to a bearish trajectory. The pattern comprises three distinctive candlesticks. The first, a large-bodied bullish candle, marks the termination of the preceding uptrend. Subsequently, a bearish candlestick emerges, entirely engulfed by the prior bullish one. This transition indicates a shift in dominance from bulls to bears. The third candlestick, another bearish one, opens midway down the body of the initial bullish candle and closes lower, finalizing the three inside down patterns and initiating the downtrend.

Traders utilize the three inside down patterns to time market exits, particularly favored by bears looking to short their positions and capitalize on the ensuing downtrend. Traders strategically place short positions and maximize profits by observing the gap down opening of the third bearish candlestick to assess the magnitude of the downtrend.

What are other types of Doji candlestick patterns besides three inside up ?

The Doji candlestick pattern, a signal of market uncertainty, comes in various types with bullish or bearish implications, providing traders cues for potential trend reversals.

  1. Doji Star: Appears at the onset of bullish or bearish trends. A bullish Doji Star, resembling a plus sign (+), emerges after a downtrend.
  2. Long Legged Doji: Found in both bullish and bearish trends, formed when the opening and closing prices are nearly identical.
  3. Gravestone Doji: A bearish pattern signaling trend reversal, observed at the end of uptrends. Characterized by a long upper wick and close opening and closing prices.
  4. Dragonfly Doji: Indicates a potential trend reversal, formed when three out of four candlestick components (opening, closing, high) align.
  5. Four Price Doji: Exhibits all four candlestick components (opening, closing, high, low) converging at the same or nearby points.

These Doji patterns, akin to the three inside up candlesticks, are crucial in discerning market ambiguity and predicting potential trend changes. While the three inside up anticipate a bullish reversal, various Doji patterns provide nuanced insights into market sentiments and potential reversals.

What candlestick pattern is similar to three inside up candlesticks?

Similar to the three inside up patterns, the morning star candlestick pattern signals a trend reversal but emerges at the end of a downtrend. Here’s a concise comparison:

  • Morning Star:
    • Formation: Three candlesticks appear after a downtrend.
    • Second Candlestick: Small bearish candlestick engulfed by the initial bearish one, indicating a potential reversal.
    • Third Candlestick: Bullish, with a gap-up opening and higher highs/lows, marking the start of an uptrend.
  • Three Inside Up:
    • Formation: Three candlesticks following a large bearish one, signaling a bullish reversal.
    • Second Candlestick: Small bearish or bullish candlestick engulfed by the first, suggesting a shift in market sentiment.
    • Third Candlestick: Bullish, confirming the uptrend.

Both patterns involve three candlesticks and predict a shift towards a bullish trend, making them similar in structure and function.

Is the pattern of three inside up a bullish reversal ?

Yes, the three inside up pattern is a clear and strong signal of a bullish reversal. This pattern emerges at the culmination of a downtrend, and upon its complete formation, it foretells an imminent shift to an uptrend. Traders keenly observe the gap-up opening and the body of the third candlestick to gauge the robustness of this bullish reversal.

What is the difference between three inside up and three inside down ?

Yes, the three inside up and three inside down patterns, though sharing a similar three-candlestick structure, play opposite roles in the stock market. Both patterns act as signals for trend reversals, appearing at the conclusion of existing market trends. The distinctions between these patterns lie in their initiation, conclusion, and the directional indications they provide.

Three Inside UpThree Inside Down
Appears at the end of downtrendsAppears at the end of uptrends
Begins with a long bearish candlestickBegins with a long bullish candlestick
Pattern ends with a bullish candlestickPattern ends with a bearish candlestick
Pattern signals a bullish reversalPattern signals a bearish reversal
Pattern denotes buyers’ entry and sellers’ exitPattern denotes buyers’ exit and sellers’ entry
Buyers take long positions to book profitsBuyers take short positions to book profits

The three inside up and three inside down patterns share a similar structure but represent opposite market sentiments, serving as valuable indicators for traders in identifying trend reversals.