Three Outside Down - Bearish Reversal Candlestick Pattern

Three Outside Down Definition

The three outside down pattern is a bearish reversal signal. The first candlestick in the formation is a small white (green) candlestick that closes near its high. The second candlestick completely engulfs the first candlestick and closes near its low. Most often the second candlestick will display an increase in volume, from the running of stops. The third candlestick then breaks the low of the second candlestick and closes near its low.

Three Outside 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 outside down pattern to be broken prior to initiating short positions.

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