Three Inside Up Candlestick Pattern: A Strong Bullish Reversal Signal

The Three Inside Up triple candlestick pattern is a reliable bullish candlestick reversal formation that signals a shift from a downtrend to an uptrend.

Traders look for this pattern of three when trying to spot potential buying opportunities at the end of a decline.

This pattern is formed by three candlesticks, where the first is a bearish candlestick, the second is a smaller bullish candlestick inside the first, and the third is a strong bullish breakout candle.

It’s often used in technical analysis to confirm trend reversals and can be a great tool for traders seeking early entry points into a new upward move.

The Three Inside Up is a triple candlestick pattern that appears at the end of a downtrend and signals a bullish reversal.

• First candlestick: A large bearish candlestick, showing that sellers are still in control.
• Second candlestick: A smaller bullish candlestick that stays inside the range of the first candle, signaling a potential change in momentum.
• Third candlestick: A strong bullish candle that closes above the first candle’s open, confirming that buyers have taken control.

This pattern is formed more effectively when the third candlestick has high volume, reinforcing the bullish reversal.

The Three Inside Up candlestick pattern is illustrated below.

• Appears after a downtrend, signaling a possible reversal.
• Pattern is formed with three candlesticks:
  • • First candle is bearish (strong down move).
    • Second candlestick is smaller and bullish, staying inside the first candle’s range.
    • Third candlestick closes above the first candle’s open, confirming the reversal.
• Higher reliability when supported by volume on the third candlestick.
• Works best near high and low support levels or at the end of a prolonged decline.

This triple candlestick pattern reflects a gradual shift in market sentiment from bearish to bullish.

1. The first candle confirms that sellers are still in control, pushing the price lower.
2. The second candlestick shows that selling pressure is weakening, but buyers aren’t strong enough yet to push the price higher.
3. The third candlestick confirms the shift, with buyers taking over and closing above the first candle’s open, which indicates a strong reversal.

The Three Inside Up pattern indicates that sellers are losing momentum and buyers are stepping in aggressively.

Market Conditions

The Three Inside Up trading strategy works best after a strong downtrend. It’s most effective when found near support zones or at key levels where reversals typically occur.

Volatility Considerations

• In high volatility markets, the pattern can appear frequently, but false signals are common. Traders may need additional confirmation from technical indicators like moving averages or RSI.

• In low volatility markets, the pattern is more reliable, as price action tends to be smoother and follow-through is stronger.

• Stop-loss placement: Below the low of the first bearish candlestick to reduce downside risk.

• Entry strategy: Enter at the close of the third candlestick or on a slight pullback to the second candlestick.

• Profit targets: Aim for previous resistance levels or use a risk-reward ratio of at least 2:1.

• Third candle fails to break above the first candle’s open: Without this confirmation, the pattern is weak.

• Low volume on the third candlestick: Weak buyer follow-through makes the reversal less reliable.

• Price reverses immediately after breakout: If a strong bearish move follows the third candlestick, it could be a false breakout.

To incorporate this pattern into a trading system, traders can:

1. Look for a downtrend before the pattern is formed.
2. Identify the Three Inside Up triple candlestick pattern with three distinct candles.
3. Use additional confirmation from technical indicators such as moving averages, RSI, or volume.
4. Set stop-losses below the first candle’s low.
5. Test performance on different markets before using it in live trading.

Below is a simple Amibroker AFL script to detect the Three Inside Up pattern:

// Three Inside Up AFL Code for Amibroker

_SECTION_BEGIN(“Three Inside Up”);

FirstBearish = Ref(Close, -2) < Ref(Open, -2);

SecondBullish = Ref(Close, -1) > Ref(Open, -1) AND Ref(Close, -1) < Ref(Open, -2) AND Ref(Open, -1) > Ref(Close, -2);

ThirdBullish = Close > Open AND Close > Ref(Open, -2);

ThreeInsideUp = FirstBearish AND SecondBullish AND ThirdBullish;

PlotShapes(IIf(ThreeInsideUp, shapeUpArrow, shapeNone), colorGreen, 0, Low);

_SECTION_END();

This script helps traders spot Three Inside Up formations on stock charts.

The Three Inside Up candlestick pattern is a strong bullish reversal signal, signaling that buyers are taking control. 

It consists of three candles, where the first is bearish, the second is a smaller bullish candle inside the first, and the third is a strong bullish breakout.

This pattern is best used after a downtrend and with confirmation from other indicators. Traders should always backtest before relying on it in live markets.

Links to articles about other Candlestick Patterns

1. Doji
2. Hammer
3. Inverted Hammer
4. Bullish Engulfing
5. Bearish Engulfing
6. Morning Star
7. Evening Star
8. Shooting Star
9. Hanging Man
10. Piercing Pattern
11. Dark Cloud Cover
12. Three White Soldiers
13. Three Black Crows
14. Dragonfly Doji
15. Gravestone Doji
16. Spinning Top
17. Marubozu
18. Tweezer Top
19. Tweezer Bottom
20. Bullish Harami 
21. Bearish Harami
22. Rising Three Methods
23. Falling Three Methods
24. Bullish Abandoned Baby 
25. Bearish Abandoned Baby 
26. Bullish Kicker 
27. Bearish Kicker
28. Three Inside Up
29. Three Inside Down
30. Upside Gap Two Crows
31. Mat Hold
32. Upside Tasuki Gap
33. Downside Tasuki Gap