The three inside up candlestick pattern is a bullish reversal trend, hinting at the conclusion of low price movement and the start of a price surge. Here are the characteristics of this pattern:
- At the outset, the markets are in a downtrend.
- The first candle is a long, bearish one, signifying a protracted downtrend.
- The second candle is a minor, bullish one that is confined within the first candle’s body, indicating a temporary halt or consolidation.
- Lastly, the final candle is bigger than the two candles before, embodying a bullish reversal.
The three inside down candlestick pattern is a bearish reversal trend denoting the end of an uptrend and the beginning of a downtrend. Here are the characteristics of this pattern:
- At the outset, the markets are in an uptrend.
- The first candle is a solid, bullish one, suggesting a prolonged uptrend.
- The second candle is a minor, bearish one that is restricted within the previous candle’s body, suggesting a momentary stop in the uptrend.
- The last candle is a robust, bearish one that takes over the two candles before, representing a bearish reversal.
What do three inside candlestick patterns tell you?
The three inside candlesticks offer a peek into market dynamics and trader psychology. As we know, the three inside up candlestick patterns reflect the transition of the market mood from bearish to bullish. The first candle stands for sellers’ control, while the remaining two demonstrate a heightened pressure to buy. Traders who recognise this pattern could predict the trend reversal and take long positions.
Conversely, the three inside down candlestick patterns record the market sentiment going from bullish to bearish. The first candle mirrors the buyers’ dominance, while the bearish candles following later symbolise the growing pressure to sell. Traders who get wind of this trend reversal pattern would generally consider entering short positions.
How to trade three inside up/down candlestick patterns?
To trade three inside candlestick patterns successfully, you need to wait for validation from alternative indicators. Other candlestick patterns, support levels, resistance levels, or trendline breaks can offer confirmation. To generate gains, use three inside candle patterns as a part of a comprehensive technical analysis strategy. Depending entirely on one indicator can muddle the bigger picture and possibly lead to premature decisions, causing losses.
There are traders who will be extra cautious and only enter into positions once the third candle manifests, completing the pattern. Others may take partial positions while the sequence is forming and alter these positions once the confirmation signals are in. If you plan to enter partial trades, ensure to use solutions like stop-loss orders or profit target determination to manage risks and earn returns.
Example of three inside up/down candlestick patterns
To understand the workings of this technical analysis tool, let us use an example explaining the mechanism of an inside down candlestick pattern. Assume a stock named XYZ is experiencing an uptrend, with its prices soaring steadily. Initially, a long bullish candle pops up, affirming the continued upward momentum. However, on the second day, a tiny bearish candle forms that is contained within the last day’s candle range. This candle depicts a pause or a consolidation of the uptrend. On the third day, a strong, bearish candle bigger than the previous two makes itself known, illustrating the takeover of a bearish sentiment. There are traders who have astutely spotted this pattern in its early stages and have taken action to capitalise on the anticipated downtrend by entering short positions.
Also read: Morning star candlestick pattern
Closing thoughts
The three inside up/down candlestick patterns can be an effective analysis solution to gauge changing market trends, helping enhance your intraday trading performance. But you should be mindful of the fact that, like any other trading tool, three inside candle patterns also have their limitations. It is therefore advised you include them in a well-rounded technical strategy that utilises additional market analysis and validation indicators alongside risk management tactics to cut losses and maximise profits.
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