The terms "three inside up" and "three inside down" refer to a pair of candle reversal patterns (each containing three individual candles) that appear on 澳洲幸运5开奖号码历史查询:candlestick charts. The pattern requires th𝓡ree candles to form in a specific sequence, showing that the current trend has lost momentum and a move in the probability of a move in the opposite direction has increased.

Understanding t🐠he Three Inside Up/♑Down Candlestick Patterns

The up version of the pattern is bullish, indicating the price move lower may be ending and a move higher is starting. Here are the characte🐲ristics of the pattern.

1. The market is in a 澳洲幸运5开奖号码历史查询:downtrend or a move lower.
2. The first candle is a red (down) candle with a large 澳洲幸运5开奖号码历史查询:real body.
3. The second candle is a green (up) candle with a small real body that opens and closes within the real body of the first candle.
4. The third candle is a green (up) candle that closes above the close of the second candle.

The down version of the pattern is bearish. It shows the price move higher is ending and the price is starting to move lower. Here are the characteristics of the patter🍷n.

1. The market is in an uptrend or a move higher.
2. The first candle is a green candle with a large real body.
3. The second candle is a red candle with a small real body that opens and closes within the real body of the first candle.
4. The third candle is a red candle that closes below the close of the second candle.

The three inside patterns are essentially harami patterns that are followed by a final confirmation candle, 🔜which many traders wait for with the harami❀ anyway.

Three Inside & Trader Psychology

Three Inside Up

The downtrend continues on the first candle with a large sell-off posting new lows. This discourages buyers, while sellers grow confidentཧ.

The second candle opens within the prior candle's trading range. Rather than following through to the downside, it closes higher than the prior close and the current open. This price action raises a red flag, which some short-term 澳洲幸运5开奖号码历史查询:short sellers may use as an opportunity to exit.

The third candle completes a bullish reversal, trapping remaining short-sellers and attracting those who are interested in establishing a long position.

Three Inside Down

The uptrend continues on the first candle, with a large rally posting new highs. The second candle opens within the prior candle's trading range and closes below the prior close and current open. This causes concern for the buyers, who may start selling their long positions.

The third candle completes a 澳洲幸运5开奖号码历史查询:bearish reversal, whe♊re more long positions are force𝕴d to consider selling and short-sellers may jump in to take advantage of the falling price.

Trꦏading theౠ Three Inside Up/Down Candlestick Pattern

The three inside up/down pattern doesn't need to be traded. It can simply be used as an alert that the short-term price direction may be changing.

For those that do wish to trade it, a long position can be entered near the end of the day on the third candle, or on the following open for a bullish three inside up. A 澳洲幸运5开奖号码历史查询:stop loss can be placed below the low of the third🦋, second, or first candle. This depends on how much risk the trader is willing to tak🐲e on.

For a bearish three inside down, a trader could enter short near ❀the end of the day on the third candle, or at the open the following day. A stop loss can be placed above the third, second, or first candle 🍒high.

These patterns do not have 澳洲幸运5开奖号码历史查询:profit targets. Therefore, it's best to utilize another method for deciding when to take profits, should they develop. This could include using a trailing stop loss, exiting at a predetermined 澳洲幸运5开奖号码历史查询:risk/reward ratio, 💮or using technical indicators or other candle♌stick patterns to signal an exit.

The pattern is fairly common, and therefore not always reliable. The pattern is also short-term in nature, so while it may occasionally result in significant trend changes, it may bring about only a small to medium-sized m൩ove in the new direction. Following the pattern, the price may not follow through in the direction e🍸xpected at all, and may instead reverse course once again, in the direction of the original trend.

Trading in the same direction as the long-term trend may help improve the performance of the pattern. Therefore, during an overall uptrend, consider looking for the three inside up during a pullback. This could signal that the pullback is over and the uptrend is resumin🙈g.

During a do🌞wntrend, look for the three inside dow🎃n following a small move higher. This could signal the move higher is over and the downtrend is resuming.

Example of Three Inside Up/Down Candlest✃ick Patterns

The following Meta (formerly Facebook Inc.) chart shows an example of a three inside down pattern that fails. It appears during a strong price rise, but the third candle is relatively small and doesn't show a lot of selling conviction. The next day the price quickly resumes trading to the upside in alignment with the broader trend.

The next two examples occur during an overall price rise and occur during pullbacks against that rise. Once the pattern occurs, the price begins to move higher again, although not necessarily right away. In both cases, the price pauses after the pattern before moving up. Therefore, it would have been prudent to have a stop loss placed below the entire pattern in order not to be prematurely 澳洲幸运5开奖号码历史查询:stopped out on a long position.

The Bottom Line

The three inside up and three inside down patterns are useful tools in candlestick analysis, servi🥂ng as indicators of potential reversals. The three inside up pattern, characterized by a smaller bullish candle sandwiched within a larger bearish candle, suggests a potential upward shift in momentum. Conversely, the three inside down pattern, which features a smaller bearish candle within a larger bullish one, indicates a possible downward trajectory. These patterns, when confirmed with additional indicators, can provide insights for traders looking to capitalize on minor shifts in market sentiment.