Three Inside Up/Down

The three inside up and three inside down are three-candle reversal patterns that appear in candlestick charts.

The three inside up is a bullish reversal pattern with the following characteristics:

1. The market is in a downtrend.
2. The first candle is a black candle with a large real body.
3. The second candle is a white candle with a small real body that opens and closes within the real body of the first candle.
4. The third candle is a white candle that closes above the close of the second candle.

Similarly, the three inside down is a bearish reversal pattern with the following characteristics:

1. The market is in an uptrend.
2. The first candle is a white candle with a large real body.
3. The second candle is a black candle with a small real body that opens and closes within the real body of the first candle.
4. The third candle is a black candle that closes below the close of the second candle.

The three inside patterns are essentially harami patterns that are followed by a final confirmation candle, which helps to increase the harami’s predictive power.

The chart pattern occurs frequently and often provides an accurate picture of when a reversal is likely to occur. As a result, many traders use the three inside pattern as a primary buy or sell signal, but it’s always a good idea to look for secondary confirmations that add predictive reliability.

Bearish energy grows on the first candle, with a wide range selloff posting new lows and discouraging bulls while bears grow confident. The second candle opens within the prior bar's trading range, rather than following through to the downside, and holds above the prior low into the closing bell. This price action raises a red flag, telling short sellers to take profits or tight stops. The third candle completes a bullish reversal, trapping remaining bears while setting off buying signals.

Bullish energy grows on the first candle, with a wide range rally posting new highs and discouraging bears while bulls grow confident. The second candle opens within the prior bar's trading range, rather than following through to the upside, and holds below the prior high into the closing bell. This price action raises a red flag, telling longs to take profits or tight stops. The third candle completes a bearish reversal, trapping remaining bulls while setting off selling signals.