Three Inside Down

The three inside down candlestick pattern is a bearish reversal pattern that suggests that the previous trend is ending and it is another name for a confirmed bearish candlestick harami . This means that the first two candles are a bearish harami, and the third black (or red) candlestick is the confirmation of the bearish trend reversal. In other words this pattern is defined by the first two days of the three day pattern forming the bearish harami, and the third day gives support to the suggested reversal of the harami since it is a black candle that closes with a new low for the three days.

Since this pattern is considered a secondary candlestick pattern, it is important to first study the major Japanese Candlesticks patterns such as the bearish candlestick harami and the bullish harami candle . This will help you to better understand and identify the secondary signals.

In order to qualify as a three inside down pattern, there is certain criterion that must be met. First, the market must be in an uptrend. Second, the bearish harami pattern must be identified in the first two days. This means that the first candlestick is white (or green) and is continuing in the direction of the trend and the second candlestick is black (or red) and is contained in the previous day’s body. Finally, on the third day, there should be a black candlestick with a lower close that the second day.

What does this pattern indicate is occurring in the markets?
This pattern indicates that the uptrend is reversing and that there is a shift in investor sentiment due to a new low. The bulls are giving in to the bears and this is confirmed on the third day as the black candlestick closes with a new low for the three days.

The reliability and strength of the three inside down signal is high and the size of the third candlestick often provides indications as to the strength of the reversal. Confirmation is received in the form of a black candlestick with a lower close or a gap down. Additionally, if the third candlestick is able to stay below the high of the second candlestick, then the signal is more bearish in nature.

Japanese Candlesticks are the fastest way for new investors to quickly and accurately read stock charts. Once you are comfortable with the major candlestick signals and you know how to read stock charts , expand your expertise by learning the various secondary Candlestick Patterns . Combine these with your favorite Technical Analysis indicators, such as the moving average , and you have the perfect trading arsenal for evaluating stocks, currencies, commodities, or Exchange Traded Funds .

Please continue your candlestick pattern education and read about the three white soldiers candlestick.