Three Inside Up Candlestick Patterns

When it comes to online share trading, mastering technical analysis is crucial for predicting market trends and comprehending stock technicals, such as the Three Inside Up pattern. In this candlestick pattern, a big down candle shows prices dropping. Then, a smaller up candle appears inside the first, showing a pause. Then a bigger up candle breaks through the previous high, indicating that buyers are taking control.

Stock traders see this pattern as a hint that it might be a good time to buy. It's usually a sign that the price is going up when the buyers take control. Here, in this article, you will get a detailed understanding of the Three Inside Up candlestick pattern and how to use it to trade wisely.

What Is The Three Inside Up Candlestick Pattern?

A Three Inside Up candlestick pattern is a bullish reversal candlestick pattern. The Three Inside Up Candlestick pattern means sellers are losing control, and buyers are taking control. The pattern has a large down candle, a smaller up candle, and another up candle. A smaller up candle is always contained within a large down candle, and the last up candle always closes higher than the second candle. 

Here's what the Three Inside Up candlestick pattern looks like:

• The first candle is a regular red or black candle, which means the price went down.
• The second candle is a smaller green or white candle. It means the price went up a little bit. Remember, the second candle's body has to be completely inside the first candle's body.
• The third candle is usually green or white, and it's bigger than the second. This candle closes above the high of the second candle. It means the price kept going up, and it broke through the previous candle's high.

Characteristics Of Three Inside Up Candlestick Pattern

The following are some characteristics of three inside-up candlestick patterns:

• A three inside up candle pattern can only be observed when the market is in a downtrend. 
• The first candle will be a down candle with a large real body. Down candles indicate a lower price, also known as black candles.
• An up candle indicates a pause in the downward trend. Additionally, Up candles have small bodies that open and close without crossing the first black candle's real body. 
• Lastly, the third candle will be white, which will close above the second candle.

An Interpretation Of A Three Inside Up Pattern

The first candle shows a continuation of the downtrend, with a huge sell-off creating new lows. In turn, this makes sellers feel more confident while discouraging new buyers. In this case, the downtrend leads to a big sell-off. 

The second candle opens within the prior candle's trading boundary. Instead of going down, it closes higher than the current open, but within the first candle's boundaries. It usually means short-term sellers are looking for an exit. Lastly, the third candle completes the bullish reversal. It traps any remaining short sellers and attracts new ones who want to get long. 

Importance Of Three Inside Up Candlestick Pattern

Here's the significance of the three inside up candlestick patterns:

• When you see three inside up candlesticks, you don't need to trade. It can just be used to tell sellers the price might change short term. 
• If you don't want to trade through this candlestick pattern, you can take a long position on the third candle. 
• You can also place a stop loss right below the close of any candle. Also, the stop-loss candle is chosen based on the trader's risk appetite. 
• Three inside up candles don't show profit targets. For this reason, it's a good idea to use another form of technical analysis to figure out when to take profits. You could use a trailing stop loss and a predetermined reward/risk ratio to determine when to exit.
• Remember, three candlesticks inside-out are pretty common. This makes it unreliable. Due to its short-term nature, it could only cause a small to medium change in direction. However, there's always a chance the price might reverse its direction again, back in the direction of the original trend.

Conclusion

In online share trading, the Three Inside Up candlestick pattern provides valuable insights. This bullish reversal pattern indicates a shift in control from sellers to buyers. Recognising this pattern can give you a hint about buying opportunities. Nevertheless, this pattern should be used in combination with other technical analysis tools, since it is just a hint, not a guarantee. To learn how to trade by understanding technical charts and making informed financial decisions, you can download the blinkX trading app.