Three Inside Up Candlestick Pattern
In the world of financial trading, identifying trend changes is crucial for making profitable decisions. One of the most effective indicators for this purpose is the “Three Inside Up” pattern. This pattern is beneficial for traders who use candlestick charting for technical analysis.
What is the Three Inside Up Pattern?
The Three Inside Up candlestick pattern is a bullish reversal pattern that is formed by three consecutive candles on a chart. The following features identify the pattern:
- The first candle is a long bearish candle, which represents a downtrend.
- The second candle is a small bullish candle, which trades within the range of the first candle.
- The third candle is a long bullish candle, which closes above the high of the first candle.
- This pattern is also known as the “3 inside up” in some trading circles. It is considered a powerful signal of a trend reversal because it shows that the bulls have taken control of the market and are likely to push the price higher.
Why is the Three Inside Up Pattern a Powerful Indicator?
The Three Inside Up candlestick is considered a powerful indicator for several reasons.
Firstly, it shows a clear shift in market sentiment from bearish to bullish. This pattern indicates that the bears have lost control, and the bulls are likely to dominate the market in the near future.
Secondly, the Three Inside Up pattern is a reliable indicator because it is a three-candle pattern, which is longer than most other candlestick patterns. Longer patterns tend to be more reliable than shorter ones because they indicate a more significant change in market sentiment.
Thirdly, this pattern is easy to spot on a candlestick chart, making it an accessible indicator for traders of all levels of experience. The Three Inside Up pattern is also easy to remember, which can help traders quickly identify trend changes and make informed trading decisions.
How to Trade this Signal
Traders can use the Three Inside Up pattern to make profitable trades by following these steps:
- Identify the Three Inside Up pattern on a candlestick chart.
- Look for confirmation of the pattern through high volume on the third candle.
- Place a long trade when the third candle closes above the first candle’s high.
- Set a stop-loss order below the first candle’s low to limit potential losses.
- Take profit when the price reaches a predetermined target or when a bearish reversal pattern is identified.
Example of Three Inside Up Candlestick
In February 2021, the GBP/USD currency pair formed a Three Inside Up candlestick pattern on the daily chart. The first candle was a long bearish candle, followed by a small bullish candle that was completely engulfed by the next bullish candle. This pattern signaled a potential reversal of the bearish trend and provided a buying opportunity for traders.
Traders who entered a long position after the third candle closed could have profited from the subsequent uptrend. The GBP/USD currency pair rose from a low of 1.3822 to a high of 1.4243 over the next few days, providing a profitable trading opportunity for those who recognized the Three Inside Up pattern.
