Instructions for trading with the Three inside outside up candlestick pattern – How to recognize and apply effectively -

Instructions for trading with the Three inside outside up candlestick pattern – How to recognize and apply effectively

Author: Michael view: 29 Update: 22/11/2023 Downloads: 0

The Three inside outside up candlestick pattern is one of the downtrend reversal candlestick patterns commonly used in stock and forex trading. As a signal for the market’s next uptrend, this model can help investors determine entry points and manage risks effectively. In this article, we will learn about the characteristics, how to recognize and apply the Three inside outside up candlestick pattern in trading.

Introduction to the Three inside outside up candlestick pattern

Instructions for trading with the Three inside outside up candlestick pattern - How to recognize and apply effectively

The Three inside outside up candlestick pattern is a downtrend reversal candlestick pattern, signaling the next uptrend of the market. This pattern often appears at the end of a market downtrend and has strong reversal properties. This means that after the Three inside outside up candlestick pattern appears, the market tends to continue going up.

The Three inside outside up candlestick pattern includes 3 candles, of which:

  • The first candle is a bearish candle with a long body.
  • The second candle is a bullish candle, with a closing price higher than half of the first candle’s body.
  • The third candle is a bullish candle, with a closing price higher than the body of the first candle.

For the Three inside outside up candlestick pattern to be confirmed, the third candle must close higher than the highest price of the second candle. This shows a market reversal and signals a new uptrend.

Characteristics of the Three inside outside up candlestick pattern

To better understand the Three inside outside up candlestick pattern, we will analyze its characteristics.

Time appears

The Three inside outside up candlestick pattern often appears at the end of a market downtrend. This means that after the market has fallen sharply for a long period of time, this pattern will appear and signal a reversal in trend.

Correlation between candles

The Three inside outside up candlestick pattern includes 3 candles, of which the second and third candles are bullish. This shows a strong increase in market prices after a long period of decline. Additionally, the third candle must also close higher than the high of the second candle to confirm the pattern.

Candle body

The first candle body of the Three inside outside up candlestick pattern is a long body, showing a strong decrease in market price. However, this candle body is not as important as the second and third candle bodies, as they are only needed to create a reversal candlestick pattern.

How to recognize the Three inside outside up candlestick pattern

Instructions for trading with the Three inside outside up candlestick pattern - How to recognize and apply effectively

To recognize the Three inside outside up candlestick pattern, you need to identify the characteristics of the pattern as stated above. You can use technical analysis tools such as MA indicators and Bollinger Bands indicators to determine the market trend before trading with the Three inside outside up candlestick pattern.

In addition, you can also use other technical analysis tools such as RSI, MACD to determine whether the market is overbought or oversold. When the market is at an oversold level and the Three inside outside up candlestick pattern appears, this is a signal for a reversal in the downtrend.

How to determine the entry point when trading with the Three inside outside up candlestick pattern

The entry point when trading with the Three inside outside up candlestick pattern is the closing price of the third candlestick. For example: If the third candlestick is a Doji candlestick, you can place a buy order at the opening price of the third candlestick.

In addition, you can also use other technical analysis tools to determine entry points, such as waiting for confirmation from various indicators. It is important that you have a clear trading plan and strictly follow it to minimize risks.

How to determine stop loss and take profit when trading with the Three inside outside up candlestick pattern

Instructions for trading with the Three inside outside up candlestick pattern - How to recognize and apply effectively

The stop loss when trading with the Three inside outside up candlestick pattern is the lowest price of the third candlestick. This means that if the price turns and closes below this level, you will exit the position to minimize your risk.

Meanwhile, the take profit point can be determined using various technical indicators or according to a specific risk/reward ratio. You can also use support and resistance levels to determine your take profit point.

Real-life examples of trading with the Three inside outside up candlestick pattern

To better understand how to apply the Three inside outside up candlestick pattern in trading, we will look at some real-life examples.

Example 1:

Instructions for trading with the Three inside outside up candlestick pattern - How to recognize and apply effectively

In this example, we have a Three inside outside up candlestick pattern that appeared after a strong price drop. The third candle confirmed the pattern by closing above the high of the second candle. After that, the market continued to go up and created a new uptrend.

Example 2:

Instructions for trading with the Three inside outside up candlestick pattern - How to recognize and apply effectively

In this example, we have a Three inside outside up candlestick pattern that appears after the market has been falling for a long time. The third candle confirmed the pattern by closing above the high of the second candle. However, then the market turned around and continued to decline. This shows that not every Three inside outside up candlestick pattern is successful and you need to follow trading discipline to minimize risks.

Benefits and risks when trading with the Three inside outside up candlestick pattern

As mentioned above, the Three inside outside up candlestick pattern signals the next uptrend of the market. Therefore, using this model can help you determine entry points and manage risks effectively.

However, as with any other trading strategy, using the Three inside outside up candlestick pattern also has some risks. It is important that you maintain trading discipline and do not rely too much on a single model.

Effective trading strategies with the Three inside outside up candlestick pattern

To apply the Three inside outside up candlestick pattern in trading, you can use the following strategies:

Strategy 1: Use the Three inside outside up candlestick pattern to determine the entry point

With this strategy, you will use the Three inside outside up candlestick pattern to determine the entry point. Once the pattern is confirmed, you can place a buy order at the closing price of the third candle and set a stop loss at the low of the third candle.

Strategy 2: Use the Three inside outside up candlestick pattern in combination with other technical indicators

With this strategy, you will use the Three inside outside up candlestick pattern combined with other technical indicators such as MA, Bollinger Bands to determine trends and entry points. This can help you identify more accurate entry points and minimize risk.

Strategy 3: Use the Three inside outside up candlestick pattern to determine the profit taking point

With this strategy, you will use the Three inside outside up candlestick pattern to determine the profit taking point. Once the pattern is confirmed, you can set your take profit at the nearest support and resistance levels or at a specific risk/reward ratio.

Notes when using the Three inside outside up candlestick pattern in trading

  • The Three inside outside up candlestick pattern is only effective when it appears in a downtrend or after a price decline.
  • You should combine this model with other technical analysis tools to determine trends and entry points more accurately.
  • Always follow trading discipline and set stop losses to minimize risks.
  • You should not rely too much on a single model, but should combine many different trading methods to make accurate decisions.

Summary and recommendations when trading with the Three inside outside up candlestick pattern

The Three inside outside up candlestick pattern is a useful tool in determining trends and entry points in trading. However, you need to follow trading discipline and combine it with other technical analysis tools to make accurate decisions.

In addition, you also need to clearly understand the factors affecting the market and always update information to be able to make the best trading decisions. We hope this article has helped you better understand the Three inside outside up candlestick pattern and apply it in trading effectively.

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