Three Outside Down Bearish Candlestick Pattern

Three Outside Down Bearish Candlestick Pattern


Three outside down is a pattern of bearish candlesticks that includes three candlesticks in one pattern. This pattern indicates a bullish trend reversal.

It is composed of two patterns that confirm a trend reversal.

  • Engulfing candlestick pattern
  • Pattern with lower lows and higher highs

An engulfing candlestick acts like an outside bar, and then a small candlestick makes a lower low to confirm that the bullish trend has been transformed into a bearish one. Because of the convergence of trends, three outside down is an extremely useful candlestick pattern.


How do you identify the three outside down candlesticks?

This candlestick pattern is composed of three candlesticks that are on the price table. Follow the steps below to find the perfect pattern on the price charts.

  1. First, identify the perfect bearish-engulfing candlestick pattern. You can also use an outside bar pattern, but bearish Engulfing is more powerful.
  2. A bearish candlestick will be formed on the chart if it confirms the engulfing pattern.
  3. If the above two steps are completed, then three outside down bearish patterns will be formed


Each day, false price patterns are formed on the chart. Avoid these false patterns.
Avoid candles that have a smaller body than the wick.

Large wicks can be indicative of indecision in a market, while large bodies indicate momentum for sellers/buyers.

If a Doji candlestack forms after the engulfing patterns, then it will not become a three outside down. Doji candlestick represents an interruption in trend, but it won’t reverse the price trend.


Three Outside Down: Information Table

Features Explanation
Number of Candlesticks 3
Prediction Bearish Trend Reversal
Prior Trend Bullish trend
Relevant Pattern Engulfing candlestick

What can three outside down reveal to traders?

Each candlestick pattern shows the trading activity behind the chart. If a bearish engulfing form is seen, it means that sellers have overpowered buyers. The market is now controlled by sellers who want to lower the price and start a bearish trend.

The bearish trend is not yet confirmed. The engulfing pattern is a sign that buyers have been defeated by sellers.
A bearish trend is confirmed when a bearish candlestick appears after an engulfing pattern. The market is controlled by sellers.


Best trading conditions

These are the best trading conditions to trade three outside down candlestick patterns:

  • Supply and Resistance Level
  • Conditions that were overbought

The probability of trend reversal increases when a three-sided down candlestick pattern forms near the supply or resistance zones. Because the ley level is where price most often bounces off.

Overbought conditions are a sign that the bullish trend is likely to reverse. The probability of trading winning increases if there is a three-outside down pattern that forms in overbought conditions.

To make a strong trading strategy, it is always advisable to filter the best trading conditions.


How to trade three outside down pattern?

Any indicator or chart pattern that is bearish can be used to trade with three outside down candlestick patterns.
This is a three-outside down trading strategy that I have simplified with some confluences.

Pro tip: Always create your own strategy using your rules and filtering odds.

Confluences that add

To increase the winning percentage of this candlestick pattern, you will need to combine three confluences.

  • Analysis of Higher time frames
  • Supply levels or resistance
  • Fibonacci tool

You can open a sell order

Once you have confirmed the three outside down patterns, it is time to identify a bearish pattern on a higher timeframe. Retail traders should trade in the direction and not against institutions.

Next, check whether the key level is a Supply or Resistance . These levels not only increase the likelihood of a trade setup, but also allow you to adjust stop-loss amounts.

Once you have confirmed the previous two steps, it is time to open a sale order immediately.

Stop-loss Level

The stop-loss level should not be lower than the supply area. You can adjust it above the three outer down patterns, but a level higher than the key levels is safe.


The Fibonacci extension tool can be used to determine take-profit levels. Fibonacci can be drawn from the entry-level level to the highest of three outside down patterns. Highlight the 1.618 Fibonacci extension levels. These levels will act as take-profit levels.


The bottom line

This is the best way of identifying a bullish trend reversal trade setup in the price chart. Technical analysis is the ability to analyze the price chart technically to understand the ideas of institutions.

This is the best way to learn how to read the market without spending too much time on screen.
Backtesting is a time-consuming activity that can help you discover price patterns.

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