A key feature of this technical indicator is that its strength is determined by the size of the engulfing candlestick, which is the second of three. The larger the second candlestick, the more significant the three-out pattern.
The Three Outside Up is a significant bullish reversal candlestick pattern that appears at the end of a downtrend, signaling a potential shift from bearish to bullish momentum. This three candle pattern is distinguished by the engulfing action of its second candle, which is its defining technical feature.
1. First Candle 👉🏻 This is a large bearish red candle, reflecting the continuation of the prevailing downtrend.
2. Second Candle 👉🏻 This is an even larger bullish green candle. It opens above the previous bearish candle's close and closes below its open, thereby completely engulfing or covering the entire real body (not necessarily the full high-low range) of the first candle. This bullish engulfing action signifies a powerful surge of buying pressure and a shift in control from sellers to buyers.
3. Third Candle 👉🏻 This is another bullish candle that closes above the close of the second candle, providing crucial confirmation of the new upward momentum.
👉 A key feature of this technical indicator is that its strength is determined by the size of the engulfing candlestick, which is the second of three. The larger the second candle is relative to the first, the more forcefully it engulfs the prior bearish sentiment. This suggests a more dominant buying force, making the reversal signal more reliable and significant. Traders often interpret this pattern as a strong indication of a downtrend's exhaustion and a clear opportunity to exit short positions or consider initiating long trades. The third candle's confirmation is vital to validate the reversal setup.
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