DEFINITION of 'Three Inside Up/Down'

The three inside up and three inside down are three-candle reversal patterns that appear in candlestick charts.

BREAKING DOWN 'Three Inside Up/Down'

The three inside up is a bullish reversal pattern, where:

  1. The market is in a downtrend;
  2. The first candle is a black candle with a large real body;
  3. The second candle is a white candle with a small real body that opens and closes within the body of the first candle;
  4. And, the third candle is another white candle that closes above the close of the second candle.

Similarly, the three inside down is a bearish reversal pattern, where:

  1. The market is in an uptrend;
  2. The first candle is a white candle with a large real body;
  3. The second candle is a black candle with a small real body that opens and closes within the body of the first candle;
  4. And, the third candle is another black 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 helps to increase the harami’s predictive power.

The chart pattern occurs relatively frequently and often provides an accurate picture of when a reversal is likely to occur. As a result, many traders use the three inside pattern as a primary trading signal, but it’s always a good idea to look for confirmations to be sure.

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