Introduction
A bullish trend reversal is indicated by this Three Outside Down Bearish Candlestick pattern, which is a bearish candlestick pattern made up of three candlesticks. Three outside down patterns appear during uptrends or near strong resistance.
The Three Outside Up Pattern is directly opposite of this pattern. It takes three days for this pattern to appear, and If you look closely at the pattern, there are two patterns in it that support the confirmation of a trend reversal.
Engulfing candlestick patterns and Lower low and lower high patterns are these two patterns. A little candlestick creating a lower low after an engulfing candlestick serves as proof that the bullish trend has turned into a negative trend.
- A tiny bullish candlestick is produced on the first day, indicating the uptrend’s continuance, as you can see in the image.
- The body of the bigger bearish candlestick that forms on day two totally engulfs the body of the bullish candlestick that was produced on day one, as seen in the image.
- On the third day, a bearish candlestick appears and stops lower than the previous day’s candlestick.
How to find three outside-down candlesticks?
Use the steps below to find three outside down patterns on the price chart.
- First, locate a great bearish engulfing candlestick pattern on the chart. Bearish engulfing is a stronger pattern than outside bars, which can also appear.
- Once the engulfing pattern has been verified, a bearish candlestick with a lower low and lower high will appear on the chart.
- Three outside down bearish patterns will appear when the first two steps above are done.
Always avoid fake patterns since they occur on the chart numerous times every day. You should stay away from candlesticks that are engulfing or outside if their bodies are smaller than their wicks. Huge wicks show market confusion, but a large body shows sellers’ or buyers’ enthusiasm. Because the Doji candlestick represents a trend end and will not influence the price trend, it will not be a three-outside down pattern if it happens after the engulfing pattern.
Information Table of Three Outside Down Candlesticks Pattern
| Structure | Description |
| Quantity of candles | Three |
| Prediction | Reversal Of Bearish Trend |
| Prior Trend | Bullish Trend |
| Relevant Pattern | Engulfing Candlestick |
Psychology of three outside down pattern
The opening candle keeps the bullish trend going, and the fact that the closing was higher than the open indicates that there was a significant purchasing action. Though the second candle begins higher, it immediately changes path and bearishly crosses through the opening pip. This price movement warns of a potential reversal; therefore, bulls should take gains or tighten stops.
The asset’s price has dropped below the range of the first candle, completing a bearish outer-day candlestick, and it is still losing money. Selling signals are consequently set off and confirmed when security strikes a new low on the third candle.
Ideal Trading Conditions
The ideal trading circumstances for three outside down candlestick foundations are overbought conditions and a supply or resistance zone.
The chances of a trend reversal increase when a three-outside down candlestick pattern appears at the supply or resistance zone. Since the ley level often causes pricing to rebound.
There is a very high chance of a positive trend reversal when the price is overbought. However, the chance of a trade following will also rise if a three-outside down pattern develops in overbought conditions.
Best way to trade three outside down pattern
Due to the confluence tools, the candlestick pattern three outside down is highly helpful. You need to add three confluences to your approach to improve this candlestick pattern’s win rate.
- Higher timeframe analysis
- Resistance or supply level
- Fibonacci tool
Higher timeframe analysis
After identifying the three outside down patterns, finding a negative trend over a longer timescale is the first step. Instead of trading against organizations, regular traders should trade in their favour.
Resistance or supply level
The key level, which might be a supply or resistance level, is checked next. These levels will help modify stop-loss levels and raise the chances of a trade setup. Open a sell order right away once the first two procedures have been completed.
Stop-loss level
Put the stop-loss level above the supply or resistance zone. Although a level above the key levels is safe, it may also be changed above the high of three outside down patterns.
Fibonacci tool
To determine the take profit levels, a Fibonacci extension tool is applied. Draw the Fibonacci sequence from the starting point to the peak of the three outside down patterns, noting the 1.618 and 2.272 extension levels. As take-profit levels, these two levels will be used.
Risk management
This method offers a low risk-reward ratio but a high winning percentage. Your recommended minimum risk for each trade is 2% of your entire account balance. You can use it in conjunction with a head and shoulders pattern to obtain a high risk/reward ratio.
Conclusions
Compared to the Bearish Engulfing pattern, this pattern provides a more dependable reversal indication. On the third day, one may be confident that the trend will reverse. The pattern is quite trustworthy, but it has to be verified. A black candle with a downward gap or a lower closing price might provide verification.
It is the most effective method for identifying a high probability bullish trend reversal trade setting on the price chart. It is always a good idea to quit your position early before the next reversal to prevent becoming caught in a trade, like with any other technology trend.
