The price is moving constantly on the chart. Occasionally, the candlesticks form repeatable patterns that can be used by traders to improve their performance. This article describes the Three Inside Up and Down Patterns. They signal reversals of the trend.
Introduction to the Three Inside Up and Down patterns
The three inside up and down patterns consist of three subsequent candles, hence the name. They appear when the trend weakens and so the change in the trend can be expected. It is somewhat a short-term formation and the price move afterwards is often small. Anyway, let’s see how it looks like.
The basics of the three inside up pattern
During the downtrend, you can spot the three inside up pattern. It forms when the downward move is coming to an end. After its appearance, the price will probably begin to move upwards.
The pattern begins with the red candle. Two green candles follow it. The first bullish candle is small and totally absorbed by the big bearish candle. The second bullish candle closes above the closing of the second candlestick in the pattern and above the opening of the first one.
The basics of the three inside down pattern
This pattern can be identified when there is an uptrend in the market. It develops at the top of the trend and announces the fall in prices.
Three candles form the pattern. The first one is a long bullish one, the second small and bearish, completely engulfed by the first one, and the third is also bearish. The closing of the last candle in the pattern lies below the previous candle closing and below the opening of the first bullish candle.
How to trade with the three inside up and down patterns
The pattern we are talking about today gives information that the change in the trend direction is imminent. It might be a short-lasting one, but you can use this knowledge to open trading positions.
A long position can be opened when the three inside up pattern appears. This is a bullish pattern that forms when the downward movement is about to finish and the price is going to rise.
There are three candles in the formation. The good moment to enter the trade is close to the last candlestick in the formation or at the beginning of the candle that develops right after the three inside up pattern.
You can open transactions for a time 3 times longer than the timeframe of the chart.
To open a short transaction wait for the three inside down pattern to appear. It will develop at the end of the upward movement. The price is expected to fall. Enter the trade when the third candlestick in the formation closes or right after the opening of the following candle.
Again, the duration of the position may be three times longer than the chart timeframe.
Conclusion
The three inside up pattern proclaims the upcoming uptrend. The three inside down pattern is followed by the downtrend.
Both inform about the change in the price direction even if it is a small one. It is possible to open trading positions with the three inside up and down patterns. However, you may want to use an extra method to confirm your entry points.
Binomo demo account is designed to practice new methods of trading. Go there and learn to recognise the three inside up and down patterns. After some practice shift to the real account.
Wish you a great trading performance!