There are many candlesticks patterns a trader can recognize on the price chart. Later, they can be used to find a good moment for opening a trading position. But first, a trader must know what the pattern looks like and what it is saying. From today’s article, you will learn how to identify and utilize the Three Inside Pattern.
Introduction to the three inside pattern
The pattern which is called the three inside pattern consists of three subsequent candles. The information they carry is that the current momentum of the trend is weakening and you may expect the price to go in the opposite direction.
This change, however, is often not particularly significant. Still, you can use the pattern in the general trend context and catch price retracements.
We can distinguish two kinds of formation, the three inside down and the three inside up patterns.
The three inside-down pattern
This type of the three inside candlesticks pattern may be observed at the top of the uptrend. The first candle that forms the three inside down pattern is a long bullish one. The second one is submerged by the leading candle and is small and bearish. The last, third candle is also bearish but its closing is situated beneath the second candle closing and the first candle’s opening.
Three inside down pattern
You can now expect the trend to reverse and the price to fall.
The three inside-up pattern
At the bottom of the downtrend, you may search for the three inside patterns. This time, the first candle is large and bearish. The next candle is a small bullish one completely absorbed by the first candle in the formation. The last, bullish candle closes above the second candle closing and the first candle opening.
Three inside-up pattern
When the three inside pattern appears, you can assume the uptrend is coming.
Trading with the three inside patterns on Pocket Option
You can only utilize the appearance of the three inside patterns as information about a rather short change in the trend direction. Also, you can use this formation to open a transaction. Here is how.
Entering a short trade with the three inside down pattern
The bearish three inside down patterns appear on the top of the uptrend. It belongs to the group of trend reversal patterns so you may expect the price will soon fall.
You should open a short position when the third candle in the formation is about to close or when the next candle begins to develop.
When you are trading currency pairs (CFDs) a stop loss should be set over the first, second, or third candle high. It is going to depend on how big a risk you are willing to bear. When trading options, keep the position open at least three times as long as the timeframe of the chart you are using.
EUR/JPY 5m chart with the three inside down pattern
Entering a long trade with the three inside-up pattern
The bullish three inside-up patterns can be found at the bottom of the downtrend. It signals the reversal of the trend.
Open a long position when the last candle in the formation is about to close or when the next candle begins to develop.
When you are trading the CFDs, your stop loss should be placed below the first, second, or third candle of the formation, depending on the amount of risk you tolerate. When trading options, keep the transaction open for at least three times longer than the timeframe of the chart you are using.
AUD/USD 5m chart with the three inside-up pattern
Final words on the three inside pattern
The three inside down and up patterns consist of three consecutive candles. Their appearance gives a signal of a minor trend change. You can find it in any liquid market.
The three inside down pattern is a bearish formation and signals the upcoming downtrend. You can open a short position with it.
The three inside up pattern is a bullish one and gives information that the uptrend is nearing. Therefore, you may open a long position with it.
You may use an additional method such as technical indicators, a trailing stop loss, or a different candlesticks pattern to identify the best moment to leave the trade.
Pocket Option offers a free demo account which is an excellent place for practicing recognizing and trading with the three inside patterns. This account is supplied with virtual cash so you do not risk your own money. You get, though, the time to work on your trading skills.
I would be happy to hear if you have any experience with trading with the three inside down and up patterns. Are you familiar with them or they are new to you? Tell me in the comments section down below.