Three Outside Down Pattern
By: Stephanie
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Three Outside Down Japanese Candlestick Pattern
The Three Outside Down is a strong 3 candle reversal pattern occuring during an uptrend and is the confirmation signal of a Bearish Engulfing Pattern and the opposite signal of a Three Inside Up Pattern.
The first two candles are a Bearish Engulfing Pattern, a two day pattern that has a small body day completely contained within vertical range of the second day's larger candle's body. This formation suggest that the previous trend is coming to an end.
The Bearish Engulfing Pattern is confirmed by a third black candlestick, with a lower close than the second day. This is the Three Outside Down signal.
Rules to identify the Three Outside Down pattern:
- The upward trend has been fairly consistent for a good period of time.
- The first candlestick is in the direction of the trend (a white candlestick).
- The second candlestick is black and engulfs the previous day's body.
- The third candlestick is black and closes lower than the second day.
Potential Signal Strengtheners:
- The longer and/or more dramatic the uptrend, the stronger chance of a reversal.
- The lower the close of the second candlestick, the stronger chance of a reversal.
- The lower the third day closes, the stronger the chance of a continued reversal.
General Analysis and Investor Sentiment:
The market trend was on its way up. The price opens higher than where it closed the previous day. But the Bears start shorting at the high prices as the Bulls start losing momentum. By the end of the day, the Bears have come out in force and moved the price below where it opened the day before. Suddenly investor sentiment sees the trend has been changed. The Bearish Engulfing Pattern represents the reversal of the upward trend.
The following day, the Bulls start closing positions as the Bears continue to go short, showing strength of reversal as the Bulls lose control to the Bears. By the end of the third day, the Bears have taken control as can be seen by the formation of the Three Outside Down pattern.
Thats it for the Three Outside Down Japanese Candlestick Pattern. Keep learning and mastering Forex with us, here at PipsAngels.com. See you soon!
