Candlestick Pattern Lesson no.10
Three Outside Up
Pattern Information: The Three Outside Up is a bullish reversal pattern composed of three candles. It often indicates a potential shift from bearish to bullish sentiment. The pattern involves a large bearish (down) candle followed by a smaller bullish (up) candle that is entirely engulfed by a larger bullish candle.
How to Use:
Identify Downtrend: Look for a prevailing downtrend in the price chart.
Spot Three Outside Up: Observe a large bearish candle followed by a smaller bullish candle that is completely engulfed by a larger bullish candle.
Confirmation: While the pattern is significant, consider additional confirmation from other technical indicators or patterns.
Entry: Consider entering a long (buy) position at the opening of the next candle following the Three Outside Up pattern.
Stop Loss: Place a stop-loss order below the low of the pattern or at a suitable support level.
Target: Determine a price target based on resistance levels or other technical analysis tools.
Important Points:
Engulfing Effect: The engulfing effect of the larger bullish candle indicates a potential reversal of the previous downtrend.
Volume: Look for higher trading volume accompanying the pattern, as it adds strength to the bullish signal.
Confirmation: Rely on confirmation signals to validate the pattern, as isolated patterns can sometimes lead to false signals.
Market Context: Consider the broader market trend, news, and other factors before relying solely on the Three Outside Up pattern.
Use the Three Outside Up pattern as part of a comprehensive trading strategy. Combine it with other technical and fundamental analysis tools to make informed trading decisions. Remember that while patterns can provide valuable insights, prudent risk management and well-reasoned decision-making are essential for successful trading.