What is Three Outside Down Candlestick Pattern?

Technical analysis uses many candlestick patterns. Traders tend to be more interested in patterns that include three or more candles. For example, the three-outside down candlestick pattern is a common one on candlestick charts. It's used by traders to determine when their trades will be successful and act as a reliable trend reversal indicator. Here's all you need to know about this three-outside down pattern.

Three outside candlestick patterns are the - An overview

The three-outside down pattern is usually seen during a bullish trend. It involves three consecutive candlesticks. These candles indicate whether there is a trend reversal. This pattern is characterized by one bullish candle followed by two bearish candles. It is crucial to identify this pattern accurately in order to execute counter-trend trading strategies.

Three outside candlestick patterns are the - An example

This indicator is very easy to understand.

This figure is worth a closer look. The price trend is strongly in the upward direction as you can see. This indicates that the bulls have control of the market. The pattern's first candle closes positively, in line with the trend. The candle's body is still small which could be taken as a sign of a slower down in buying interest. The second candle is referred to as a gap up, which indicates that bulls are trying to push prices higher.

The buying interest in the market suddenly drops off completely and the bears take over. The market is thrown off balance by the sudden influx sellers, and the price plunges downward. The bears hold on the second session is so strong that the closing price for the second candle is lower than the opening price for the bullish candle. The second candle is essentially engulfed by the first one due to the high selling pressure. The bears continue their assault, picking up speed in the third session. The pattern's final candle is also negative.

This is a crucial point to remember. This pattern must close below the second bearish-engulfing candle in order to be considered successful. This is a confirmation that the bearish trend has reversed.

How to use three outward pattern ?

Before you enter into any trade that is based on the three-outside down candlestick patterns, here are some important points.

- First, look for a bullish trend on charts.

- Wait for a small bullish candle if you have identified the bullish trend. This candle would be the first in the three-outside down patterns.

- Wait for the long bearish candle to appear on the charts once you have spotted the bullish candle. The second candle should be long and encompass the first bullish candle. This phase is very important and you should only enter into trades if the second candle in a pattern meets these conditions.

Unlike other indicators, you don't have to wait for trend confirmation with the three-outside down pattern. This is because the confirmation candle is the third candle in a three-outside down candlestick pattern.

The pattern and trend reversal must be successful. Therefore, the third candle must also be bearish. You can now start your trading strategy once this candle has confirmed the trend reversal.

Conclusion

It is quite common to see the three-outside down pattern on charts. This technical indicator can be used as a guide. The strength of the trend reversal is essentially determined by the second engulfing bearish candles. The trend reversal will be stronger if the second candle lasts longer. To avoid being stuck in a trade, it's a good idea, just like with any technical indicator, to exit your position before the next trend reversal.