There are various candlestick patterns, and you don’t need to master them all to make good money in the stock market. Most traders prefer to rely on the candlestick patterns that are formed through multiple candles, and they are often considered stronger signals as opposed to simpler bar patterns. Understanding the Three Outside-Up Candlestick pattern will help you identify the trend reversal signals that will help you make the most out of market fluctuations.
The three outside-up is a bullish candlestick pattern that signifies reversals after a bearish trend. As the name suggests, there are three different candles in this pattern that are formed across sessions. When this pattern is formed, the market follows a bullish sentiment.
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As it is a bullish pattern, the first candlestick in the pattern is a small red candle which is from the continuation of the past trend, the next candle in the sequence is a larger green candle, and the last one is also a green candle that goes beyond the highs of the first two candles in the sequence.
This pattern is formed as specified below.
1. The market is in a downtrend before the start of this pattern.
2. The first candle in this pattern will be a small red candle with small wicks on both sides. This signifies that the previous bearish trend is becoming uncertain, and bullish momentum is building.
3. The next candle in this sequence will be a bigger green candle which will engulf the previous red candle completely in size. This gives a signal that there will be a change in the trend.
4. The final candle in the sequence will be a green candle that has to close off above the second candle’s high.
This is a bullish reversal pattern, and it is always better to take a long position in security when the pattern is identified. It is recommended to take a long position by the closing of the third candle and ride the trend change.
Your position’s stop loss should be placed at the lows of either two previous candles if you have more risk-taking capacity.
Always trade in the direction of the market's movement and avoid going against the market sentiments. Pay attention to signals that lead to profitable trades. Open an account with us and experience the rewards of employing these systematic trading strategies.