Many patterns can be found on technical analysis charts when day trading. It can be challenging to focus on one chart setup to trade. This article will focus on one specific pattern: the three inside up candlestick patterns. This pattern comprises three consecutive candles and has a higher high and higher low than the previous. It is a significant sign that the market is about to reverse its trend.
Three Inside Up Pattern Defined
A three inside up candlestick pattern is a three-candle pattern that forms when the market is in a downtrend. The first candle is bearish; a bullish candle is next, followed by another bullish candle. Each successive candle has a higher high and high low than the previous one. This pattern is considered a strong signal that the market is about to reverse its trend. Let’s look at some examples below of the pattern on charts.
The charts above show that the first candle in the pattern is a long red bearish candle, followed by two bullish green candles. The second candle in this three-bar setup is bullish and falls between the high and low of the previous red candle. However, the third candle in the pattern is bullish and extends beyond the high of the first candle (red candle).
Hopefully, by now, you should be able to recognize this pattern on a stock chart. However, this pattern is available on other candlestick charts outside the stock market, like the forex market, cryptocurrency, and futures commodity charts.
Now, let’s review how to trade this setup more effectively. This pattern is best suited as a reversal pattern to go long (or bullish) on a stock.
Trading the Triple Candlestick Pattern
To trade this pattern, you would enter a long position when the third candle forms, and it has closed. Place your stop loss below the second candle’s low, and your target would be the previous high or at a level of support or resistance.
It is best to ensure that you have a decent risk-to-reward ratio if trading this strategy and that you are planning to exit at the previous high or support and resistance level. You don’t want to risk more than you will capture as a gain.
Feel free to trade the pattern on longer or shorter timeframes, such as 15-minute charts. However, it more commonly can be identified on shorter timeframes than longer ones.
This candlestick pattern is a reliable reversal signal that can be used in your day trading strategy. By understanding how it is formed and what it signifies, you can make better decisions about when to enter and exit trades. Always use stop losses and take profits at predetermined levels to protect your capital. With practice, you can identify this pattern on charts and use it to your advantage.
Reference these five tips below to help you trade the three inside up candlestick pattern:
#1 – Look for Downtrend
Look for the pattern after a prolonged downtrend. Because the three inside up pattern is a reversal pattern, it is more likely to occur after a downtrend. When waiting for it to appear after a downtrend, please be careful, as the trend could reverse and go back in its original direction.
#2 – Be Patient
Be patient and wait for the three inside up pattern to complete before taking a trade. To do this, wait for the third candle to close. Once the close occurs, submit a long trading position. For additional confirmation, you can wait for the fourth candle to form and move in your direction before entering the trade.
#3 – Set Stop Loss
When trading the three inside up pattern, place your stop loss below the low of the second candle. The stop loss will help minimize losses if the trading setup does not pan out.
#4 – Determine Take Profit Level
Take your profit when the price closes above the high of the three inside up candlestick pattern. This price level is an excellent target as it indicates that the current trend has reversed. If you want to wait until the next level of support or resistance, then you can feel free to take some initial profits and trail any remaining open position to your next target level.
#5 – Stay Focused
Remember that no trading strategy is perfect, and there will be times when the three inside up pattern does not work. Don’t get discouraged, and keep trying different methods until you find one that works. Remember to practice the strategy using a demo account to ensure that you can quickly identify the pattern and to ensure that you are comfortable with it before trading in a live trading account.
By following the setup tips above, you will be well on trading the three inside candlestick patterns like a pro! Remember to be patient and disciplined when incorporating this pattern in your trading plan, and always place a stop loss to minimize your losses.
thinkorswim Trading Setup
If you still need help identifying the pattern, thinkOrSwim has a chart indicator for the three inside up candlestick pattern.
Here are the quick steps to add it to your chart.
1. Open thinkOrSwim platform.
2. Navigate to the Chart tab.
3. Click ‘Patterns.’ Then ‘Select Patterns’.
4. Select the ThreeInsideUp pattern under ‘Candlestick’ and add it to the chart.
5. The pattern is indicated on the chart whenever identified for the symbol and timeframe.
Note: You may want to check your settings to confirm the pattern is visible on the chart.
Summary: Three Inside Up Candlestick Pattern
The three inside up candlestick pattern is a standard chart pattern used in technical analysis for day trading. It is composed of three bullish candlesticks that have consecutively higher closes. This pattern signals that the bulls are in control and that a reversal may occur.
Patterns can be a beneficial concept to aid in trading. We use an easy four-candle pattern setup to trade daily. Would you like to learn about our day trading program?
Maurice Kenny has helped over 600 people become financially free through one-on-one coaching, mentorship, and options trading strategy. Many of these new traders are now full-time traders, and they all started by watching his 1-hr webinar.
Feel free to check out other FREE educational resources to help guide you as you begin your new journey to financial freedom.
Also, download a (FREE E-BOOK) by Maurice Kenny, “DAY TRADE LIKE A MILLIONAIRE.”