Understanding Three Inside Up And Down In Candlestick Charts
- 02 May 2023
- By: BlinkX Research Team
Open Demat Account
For making informed decisions in online share trading, investors and traders often use technical analysis tools. One such effective tool is candlestick patterns. This tool gives you a lot of insight into market trends and potential reversals. For traders looking to identify potential market shifts, the three inside up and down patterns are important.
These three inside up and down patterns on candlestick charts are considered reversal patterns. For traders, these patterns can indicate that a trend has exhausted its potential and is likely to reverse. Moreover, these patterns can help traders figure out where to enter or exit their trades.
In this article, we will look into the candlestick chart, three inside up and down patterns and its implications in online share trading. With these patterns, traders can enhance their technical analysis skills and make more money in the stock market.
What are Candlestick Charts?
On charts or graphs of stocks, you may have seen coloured candles positioned at various points. This chart is called a candlestick chart, and the candles are called candlesticks. In candlestick charts, the size of price fluctuations for a given stock is represented visually. They help investors predict the trend reversal (when the current trend will reverse) based on price fluctuations and help them understand where the market is headed (market trend).
Table of Content
- What are Candlestick Charts?
- What are Three Inside Up and Down in a Candlestick Chart?
- How to Trade the Three Inside Up and Down Candlestick Pattern?
- What are the Three Inside Up and Down Trader Psychology?
- Conclusion
What are Three Inside Up and Down in a Candlestick Chart?
A Three Inside Up and Down Candlestick pattern is a candle reversal pattern containing three candles. The Three Inside Up and Down pattern means the current market trend has peaked and lost momentum, and it will likely move in the opposite direction.
A Three Inside Up candlestick pattern is a bullish reversal pattern. The candle has a large down candle, a small up candle, and another up candle. The first large down candle always contains the smaller up candle, and the last up candle always closes above the second candle's closing price.
A Three Inside Down candlestick pattern is a bearish reversal pattern. There is a large up candle, a smaller down candle, and another down candle. In this pattern, the second candle is also inside the first candle, and the last down candle always closes below the second candle's closing price.
How to Trade the Three Inside Up and Down Candlestick Pattern?
Three Inside Up candlesticks indicate a bullish trend. It means the current price fall, which has continued for a while, has reached its potential, and it can only go higher from there. This tells investors that if they enter a trade at this point, the prices will rise and they'll make money.
Candlestick patterns with Three Inside Downs are bearish. The chart indicates that the price rise that has been occurring for a long time is nearing its end. As a result, investors know they can book profits since the price may fall in the future.
Investing in the Three Inside Up and Down candlestick pattern does not involve trading, but rather uses it as a mere indicator. Nevertheless, if you wish to take a long position at the end of the day based on the pattern, consider taking a long position on the third candle for the Three Inside Up pattern. Three Inside Downs are good for taking short positions or booking profits near the end of the day.
What are the Three Inside Up and Down Trader Psychology?
Here's the trader psychology for the Three Inside Up and Down:
The Three Inside Up
Because investors selling stocks in large volumes, the Three Inside Up continues to fall in price at the first candle. In turn, this discourages buyers since they think the price might go down even further if they invest now.
On the other hand, it's great for sellers who want to book profits or cut losses, fearing a further drop in prices. As the second candle closes higher than the first candle's previous close and the current open, investors get worried. A short seller can take advantage of this situation to exit. The third candle is where the bullish candle reverses, attracting investors who want to go long.
The Three Inside Down
During a Three Inside Down candle, the price rise continues on the first candle due to increased buyer interest. As the price rises, buyers are encouraged and sellers are discouraged from raising their prices further.
The second candle closes below the previous closing and current opening of the first candle. The situation raises a concern and leads to buyers selling their long positions. As the bearish candle reverses on the third candle, investors with long positions are forced to sell their positions and short sellers to profit.
Conclusion
Trading and investing in online share markets can be a lot easier when traders and investors understand candlestick patterns. These patterns indicate potential reversals in market trends, offering insights into when a current trend may be losing momentum and likely to change direction.
In order to maximize the chances of profitability, you need to recognize and interpret these patterns correctly. However, you shouldn't just rely on candlestick patterns for your trading decisions. It's best to combine them with other technical analysis tools and indicators, as well as consider market conditions and fundamentals.