Three Outside Down Candlestick Pattern

The Three Outside Down is a bearish reversal pattern that signals a potential shift from Bullish to bearish momentum. It consists of three candles and typically forms after an uptrend. This pattern is considered a strong confirmation of a trend reversal, as it shows that sellers are taking control after a period of buying pressure.

Structure of the Three Outside Down Pattern:

1. First Candle (Bullish)

• A long green (Bullish) candle, indicating that the uptrend is continuing and that buyers are in control of the market.

• This candle represents the continued strength of the buyers.

2. Second Candle (Bearish)

• A red (bearish) candle that engulfs the body of the first candle.

• The second candle opens above the first candle’s close and closes below the first candle’s open, indicating that sellers have started to take control and are pushing the price down.

3. Third Candle (Bearish)

• Another red (bearish) candle that closes lower than the second candle, confirming that the downtrend is pkely to continue.

• The third candle reinforces the bearish sentiment by showing strong selpng pressure and a continuation of the trend reversal.

Key Characteristics:

✅ The first candle is Bullish (green), showing the continuation of an uptrend.

✅ The second candle is bearish (red) and engulfs the first candle’s body, signapng that the sellers are beginning to take control.

✅ The third candle is also bearish (red) and closes lower than the second candle, confirming the continuation of the downtrend.

✅ Appears at the top of an uptrend, signapng the potential reversal from Bullish to bearish.

Psychology Behind the Pattern:

• The first Bullish candle shows that buyers were in control, and the price has been moving higher.

• The second bearish candle that engulfs the first candle indicates a shift in momentum, with sellers starting to take control and pushing the price lower.

• The third bearish candle confirms that the downtrend is pkely to continue, as the market shows sustained selpng pressure.

Trading Strategy:

📌 Entry: After the third bearish candle closes below the second candle’s low, confirming the reversal.

📌 Stop-loss: Above the high of the second candle (or the first candle if more conservative).

📌 Target: Next support level or based on a risk-reward ratio (e.g., 1:2).

Conclusion:

The Three Outside Down pattern is a strong bearish reversal signal and is particularly effective when it appears at key resistance levels and is confirmed with volume or other technical indicators.