Three Inside Up and Three Inside Down
Three Inside Up Pattern
The Three Inside Up is a strong 3 candle reversal pattern occuring during a downtrend and is the confirmation signal of a Bullish Harami and the opposite signal of a Three Inside Down Pattern.
The first two candles are a Bullish Harami, a two day pattern that has a small body day completely contained within vertical range of the previous larger candle's body.
This formation suggest that the previous trend is coming to an end.
The Bullish Harami is confirmed by a third white candlestick, with a higher close than the second day. This is the Three Inside Up signal.
Three Inside Up Trading Rules:
- The downward trend has been fairly consistent for a good period of time.
- The first candlestick is in the direction of the trend (a black candlestick).
- The second candlestick is white and contained in the previous day's body.
- The third candlestick is white and closes higher than the second day.
Signal Strengtheners:
- The smaller the body of the second candlestick, the more indecision of the market.
- The larger the body of the second candlestick, the stronger chance of a reversal.
- The higher the third day closes, the stronger the chance of a continued reversal.
General Analysis:
After a downtrend, this pattern suggests an uptrend will likely occur. The strength of this formation consists of the fact that the Harami pattern indicates the trend has stopped. Large volume trading on this day could indicate a shift in investor sentiment, thus the Bears are succumbing to the Bulls. The third day shows the strength of the reversal, and the more Bears sell off positions and the more Bulls that go long, the higher the candlestick closes. This would provide confirmation of the reversal.
Three Inside Down Pattern
The Three Inside Down is a strong 3 candle reversal pattern occuring during an uptrend and is the confirmation signal of a Bearish Harami and the opposite signal of a Three Inside Up Pattern.
The first two candles are a Bearish Harami, a two day pattern that has a small body day completely contained within vertical range of the previous larger candle's body.
This formation suggest that the previous trend is coming to an end.
The Bearish Harami is confirmed by a third black candlestick, with a lower close than the second day. This is the Three Inside Down signal.
Three Inside Down Trading Rules:
- The upward trend has been fairly consistent for a good period of time.
- The first candlestick is in the direction of the trend (a white candlestick).
- The second candlestick is black and contained in the previous day's body.
- The third candlestick is black and closes lower than the second day.
Signal Strengtheners:
- The smaller the body of the second candlestick, the more indecision of the market.
- The larger the body of the second candlestick, the stronger chance of a reversal.
- The lower the third day closes, the stronger the chance of a continued reversal.
General Analysis:
After an uptrend, this pattern suggests a downtrend will likely occur. The strength of this formation consists of the fact that the Harami pattern indicates the trend has stopped. Large volume trading on this day could indicate a shift in investor sentiment, thus the Bulls are succumbing to the Bears. The third day shows the strength of the reversal, and the more Bulls sell off positions and the more Bears that go short, the lower the candlestick closes. This would provide confirmation of the reversal.
