How To Use Three Outside Up Candlestick In Trading

The Three Outside Up candlestick pattern is a bullish reversal pattern that typically appears after a downtrend. It signals a potential shift from bearish to bullish momentum and consists of three candlesticks.

🔺 Three Outside Up (Bullish Reversal)

✅ Structure:

1. First Candle: Bearish (red), shows the current downtrend
2. Second Candle: Bullish engulfing candle – it fully engulfs the first candle’s body
3. Third Candle: Another bullish candle closing higher than the second candle

🔍 Meaning:

• First candle shows the existing selling trend
• Second candle signals a strong shift in sentiment (bullish engulfing)
• Third candle confirms the reversal with follow-through buying

📈 Use Case:

• Appears at the end of a downtrend
• Signals a bullish reversal
• Stronger if occurs near a support zone

🎯 Trading Strategy:

• Entry: At the close of the third candle, or break above its high
• Stop-Loss: Below the low of the first candle
• Target: Nearby resistance or Fibonacci level

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🔻 Three Outside Down (Bearish Reversal)

✅ Structure:

1. First Candle: Bullish (green), shows the current uptrend
2. Second Candle: Bearish engulfing – fully engulfs the first candle’s body
3. Third Candle: Another bearish candle closing lower than the second candle

🔍 Meaning:

• First candle continues the existing bullish trend
• Second candle shows a strong shift to bearish control
• Third candle confirms the reversal with continued selling

📉 Use Case:

• Appears at the top of an uptrend
• Signals a bearish reversal
• Stronger if it forms near resistance

🎯 Trading Strategy:

• Entry: At the close of the third candle, or break below its low
• Stop-Loss: Above the high of the first candle
• Target: Next support level or a measured move

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🧠 Pro Tips

• Use volume confirmation: higher volume on second or third candle is more convincing
• Combine with trendline breaks or oscillator divergence
• Look for patterns on H1, H4, or daily timeframes for stronger signals