Contents
From today's article, you will learn how to identify and utilise the Three Inside Up Pattern and its bearish variant. There are many candlesticks patterns a trader can recognise on the price chart. Later, they can be used to find a good moment for opening a trading position. But first, a trader must know what the pattern looks like and what it is saying.
Key Takeaways🔑
| →Three Inside Patterns are useful for identifying short-term trend reversals in the market. |
| →Both the Three Inside Up and Three Inside Down patterns consist of three consecutive candles. |
| →Utilizing these patterns in conjunction with other technical indicators can increase their effectiveness. |
Introduction to the three inside pattern
The pattern which is called the three inside pattern consists of three subsequent candles. The information they carry is that the current momentum of the trend is weakening and you may expect the price to go in the opposite direction.
This change, however, is often not particularly significant. Still, you can use the pattern in the general trend context and catch price retracements.
We can distinguish two kinds of formation, the three inside down and the three inside up patterns.
What is three inside down candlestick pattern?
This type of the three inside candlesticks pattern may be observed at the top of the uptrend. The first candle that forms the three inside down pattern is a long bullish one. The second one is submerged by the leading candle and is small and bearish. The last, third candle is also bearish but its closing is situated beneath the second candle's closing and the first candle's opening.
You can now expect the trend to reverse and the price to fall.
What is three inside up pattern?
At the bottom of the downtrend, you may search for the three inside up pattern. This time, the first candle is large and bearish. The next candle is a small bullish one completely absorbed by the first candle in the formation. The last, bullish candle closes above the second candle's closing and the first candle's opening.
When the three inside up pattern appears, you can assume the uptrend is coming.
Trading with the three inside patterns on IQ Option
You can only utilise the appearance of the three inside pattern as information about a rather short change in the trend direction. Also, you can use this formation to open a transaction. Here is how.
Entering a short trade with the three inside down pattern
The bearish three inside down pattern appears on the top of the uptrend. It belongs to the group of the trend reversal patterns so you may expect the price will soon fall.
You should open a short position when the third candle in the formation is about to close or when the next candle begins to develop.
When you are trading currency pairs (CFDs) a stop loss should be set over the first, second or third candle's high. It is going to depend on how big risk you are willing to bear. When trading options, keep the position open at least three times as long as the timeframe of the chart you are using.
Entering a long trade with the three inside up pattern
The bullish three inside up candle stick pattern can be found at the bottom of the downtrend. It signals the reversal of the trend.
Open a long position when the last candle in the formation is about to close or when the next candle begins to develop.
When you are trading the CFDs, your stop loss should be placed below the first, second or third candle of the formation, depending on the amount of risk you tolerate. When trading options, keep the transaction open for at least three times longer than the timeframe of the chart you are using.
Pros and Cons of the Three Inside Patterns 📈📉
- Pros:
- 👍 Easy to identify and understand.
- 👍 Useful for short-term trading strategies.
- 👍 Can be combined with other technical indicators for better accuracy.
- Cons:
- 👎 Not suitable for long-term trend predictions.
- 👎 May produce false signals in certain market conditions.
- 👎 Requires practice and experience to master.
| Three Inside Up Pattern | Three Inside Down Pattern |
|---|---|
| Forms at the bottom of a downtrend. | Forms at the top of an uptrend. |
| Signals a potential bullish trend reversal. | Signals a potential bearish trend reversal. |
| Consists of one large bearish candle, followed by a smaller bullish candle, and a final bullish candle closing above the previous candles' levels. | Consists of one large bullish candle, followed by a smaller bearish candle, and a final bearish candle closing below the previous candles' levels. |
Final words on the three inside pattern
The three inside down and up patterns consist of three consecutive candles. Their appearance gives a signal about minor trend change. You can find it in any liquid market.
The three inside down pattern is a bearish formation and signals the upcoming downtrend. You can open a short position with it.
The three inside up pattern is a bullish one and gives information that the uptrend is nearing. Therefore, you may open a long position with it.
You may use an additional method such as technical indicators, a trailing stop loss or a different candlesticks pattern to identify the best moment to leave the trade.
IQ Option offers a free demo account which is an excellent place for practising recognising and trading with the three inside patterns. This account is supplied with virtual cash so you do not risk your own money. You get, though, the time to work on your trading skills.
I would be happy to hear if you have any experience with trading with the three inside down and up patterns. Are you familiar with them or they are totally new to you? Tell me in the comments section down below.
Wish you many winning trades!
Short Q&A 💬
- Q1: What is the primary purpose of the Three Inside Patterns?
- A1: The primary purpose of the Three Inside Patterns is to identify short-term trend reversals in the market.
- Q2: How many candles form the Three Inside Patterns?
- A2: Both the Three Inside Up and Three Inside Down patterns consist of three consecutive candles.
- Q3: Can the Three Inside Patterns be used for long-term trend predictions?
- A3: No, the Three Inside Patterns are not suitable for long-term trend predictions as they focus on short-term trend reversals.
- Q4: Are there any drawbacks to using the Three Inside Patterns for trading?
- A4: Drawbacks include the possibility of producing false signals in certain market conditions and the need for practice and experience to master their use.
- Q5: How can the effectiveness of the Three Inside Patterns be increased?
- A5: Utilizing these patterns in conjunction with other technical indicators can increase their effectiveness and accuracy.