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What is Three Outside Down Candlestick Pattern

11 Aug 2023

Introduction

  • Investors commonly use a candlestick chart, which is a tool that showcases the changes in prices for financial securities.
  • The reversal of upward and downward price trends in the market creates an opportunity for investors to purchase or sell financial securities.
  • A three-outside-down candlestick pattern is an excellent indicator of an upward trend reversal. Read on to learn more!

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What is a Three-Outside-Down Candlestick Pattern?

The basics of a three-outside-down candlestick pattern are as follows:

  • Formed on a candlestick chart, the three-outside pattern consists of one bullish and two bearish candles.
  • The bullish candle formed would be white, and the bearish ones would be black.
  • The first bearish candle (the second candle) will be long enough to cover the first one (the bullish candle).
  • The second bearish candle (the third candle) will start at a price higher than the closing price of the second candle. However, it will have a closing price lower than the second candle.

What Does the Three-Outside-Down Candlestick Pattern Indicate?

The three-outside-down candlestick indicates the following:

  • A three-outside-down candlestick is formed when the market is on an upswing. It indicates a trend reversal for financial security.
  • The increase shown by the first candle is a continuation of the upward trend due to the bullish behavior of the investors.
  • The starting price of the second candle shows that there is an attempt to push the prices. However, the closing price indicates that the interest of investors is dwindling.
  • The third candle indicates that the investors are no longer interested in purchasing and are selling the financial security as the price falls even further.
  • The three candles put together form the three-outside-down candlestick pattern, indicating the start of a downtrend for financial security.

How Can an Investor Utilize the Three-Outside-Down Candlestick Pattern?

  • An investor must observe the second candle to confirm whether the candles depicted on the candlestick chart are forming a pattern.
  • Once confirmed, the investor can choose to enter a trade with the intent of selling the financial security before the price drops further.
  • The investor can use the pattern to minimize losses and maximize profits earned from financial security by selling at the right time.

Conclusion

  • A three-outside-down candlestick pattern is a reliable indicator of a change in trend from upward to downward.
  • Investors should understand the candlestick chart before making a trading decision.
  • They should also ensure that all conditions for the pattern are satisfied.

 

Related Articles: What Is Candlestick Wick Analysis | What Is On Neck Candlestick Pattern | What is Three Inside Down Candlestick Pattern | What Does a Paper Umbrella Candlestick Indicate

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