Three Inside Down - Bearish Reversal Candlestick Pattern

Three Inside Down Definition

The three inside down pattern is a bearish reversal signal. The first candlestick in the formation is a long white (green) candlestick that closes near its high. The second candle gaps away from the previous days close, and closes inside the body of the first candle, creating a harami. The third candle then exceeds the low of the first and second candle, thus creating a three inside down pattern. This pattern is quite frequent in the morning as traders react to news driven events. This setup can be extremely profitable for skilled day traders who go counter to the primary trend.

Three Inside Down Charting Example

The size of the third candlestick will often provide some indication to the strength of the reversal pattern. Also, if the third candlestick is able to stay below the high of the second candlestick, it provides more support to the bearish case. Traders should wait for the low of the third candlestick in the three inside down pattern to be broken prior to initiating short positions.

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