The Stock Stethoscope

The “Three Inside Up” candlestick pattern is a bullish reversal pattern that indicates a potential trend reversal from bearish to bullish. It’s a three-candle pattern that forms after a downtrend, signaling that the bulls are starting to gain control over the market.

Here’s how the pattern is formed:

1) The first candlestick is a long bearish candle, which indicates that the bears are in control of the market. The long body of the candle indicates a significant selling pressure.

2) The second candlestick is a bullish candle that trades within the range of the first candlestick. This indicates that the bears are losing control over the market, and the bulls are starting to gain control. The bullish candlestick does not need to close above the opening price of the previous candle.

3) The third candlestick is a bullish candlestick that closes above the previous candle’s high. This confirms the reversal of the trend, and traders may consider entering long positions.

The Three Inside Up pattern indicates a strong buying pressure, and traders should look for confirmation from other technical indicators before entering into a long position. The pattern has a higher chance of success when it forms after a significant downtrend, and the longer the downtrend, the stronger the signal.

It’s important to note that the pattern is not foolproof and may fail, especially in volatile markets. Therefore, it’s important to use other technical indicators and risk management strategies to minimize potential losses.