Three Outside Up Candlestick Pattern – What Is And How To Trade

Everything that you need to know about the Three Outside Up candlestick pattern is here.

Today you’ll learn:

What Is The Three Outside Up Candlestick Pattern
How To Identify The Three Outside Up Candlestick Pattern
Variants Of The Three Outside Up Candlestick Pattern
How To Trade The Three Outside Up Candlestick Pattern
Strategies To Trade The Three Outside Up Candlestick Pattern
What Is The Success Rate Of The Three Outside Up?
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What Is The Three Outside Up Candlestick Pattern

The Three Outside Up is a Japanese candlestick pattern.

It’s a bullish reversal pattern.

Usually, it appears after a price decline and shows rejection from lower prices.

The pattern is bullish because we expect to have a bull move after the Three Outside Up appears at the right location.

It’s a reversal pattern because before the Three Outside Up appears we want to see the price going down, thus it’s also a frequent signal of the end of a trend.

The Three Outside Up pattern is also a mirrored version of the Three Outside Down candlestick pattern.

How To Identify The Three Outside Up Candlestick Pattern

The Three Outside Up candlestick pattern is formed by three candles.

Here’s how to identify the Three Outside Up candlestick pattern:

The first candle is bearish and small
The second candle is bullish and engulfs the first one completely
The third candle is bullish and closes above the other ones

It looks like this on your charts:

Variants of the Three Outside Up Candlestick Pattern

The Three Outside Up candlestick pattern may appear a little different on your charts:

The candles may have big wicks at the bottom, like hammer candles

Here’s what it may look like on your charts:

How To Trade The Three Outside Up Candlestick Pattern

To trade the Three Outside Up candlestick pattern it’s not enough to simply find a pattern with the same shape on your charts.

Let me explain.

What makes a pattern valid is not just the shape, but also the location where it appears.

This means that the same shape appearing at different locations may have different meanings.

When trading the Three Outside Up, we want to see the price first going down, making a bearish move.

A Three Outside Up appearing after this bearish move is a sign of a possible reversal to the upside.

It looks like this:

Now you’re thinking.

“When do I open my trade?”

It’s simple, the Three Outside Up pattern is traded when the high of the last candle is broken.

That’s your conservative trigger to go long.

It looks like this:

Now, you also want to protect yourself because when trading things don’t always move as we expect.

And for that, we use a stop loss.

There are several different types of stop losses.

The most common is to use the other side of the pattern to set it.

Like this:

But wait, don’t jump into trading the Three Outside Up right yet.

There are a few more things to know.

Ideally, to increase the accuracy, we want to trade the Three Outside Up candlestick pattern by combining it with other types of technical analysis or indicators.

Here are a few strategies to trade the Three Outside Up pattern.

Strategies To Trade The Three Outside Up Candlestick Pattern

Strategy 1: Pullbacks On Naked Charts

As a bullish reversal pattern, the Three Outside Up is a great pattern to watch for when the price is on an uptrend.

Just wait for a pullback to start, and then spot when the Three Outside Up appears.

That often signs the end of the pullback and the start of the new leg to the upside.

Here’s an example:

Strategy 2: Trading The Three Outside Up With Support Levels

Support and resistance levels are great places to find price reversals.

Since we are looking for moves to the upside, we want to trade the Three Outside Up using support levels.

How does it work:

Draw support levels on your charts
Wait for the price to decline and hit the support level
Check if a Three Outside Up appears at that level
Go long when the price breaks the high of the last candle of the Three Outside Up
Set your stop loss and take profit levels, and expect a move to the upside

Here’s an example:

Strategy 3: Trading The Three Outside Up With Moving Averages

Moving averages are great trading indicators to trade trends.

The idea here is to trade pullbacks to the moving average when the price is on an uptrend.

How does it work:

Find an uptrend, with the price jumping above a moving average
Wait for a decline in the price to the moving average
Check if a Three Outside Up appears at the moving average
Go long when the price breaks the high of the last candle of the Three Outside Up
Set your stop loss and take profit levels, and expect another leg to the upside

Like this:

Strategy 4: Trading The Three Outside Up With RSI Divergences

This is a bit different from the other trading strategies.

To find a bullish RSI Divergence we want to see the price on a downtrend first, making lower lows and lower highs.

Here’s how it works:

Find a downtrend
Mark the lows that the price makes after each leg to the downside
At the same time compare the price lows with the RSI indicator
When you see the RSI making higher lows while the price making lower lows, you found your divergence
Now you wait until a Three Outside Up appears at a price lower low, aligned with an RSI higher low.
Go long when the price breaks the high of the last candle of the Three Outside Up
Set your stop loss and take profit levels, and expect a move to the upside

Like this:

Strategy 5: Trading The Three Outside Up With Fibonacci

Another popular way of trading the Three Outside Up candlestick pattern is using the Fibonacci retracement tool.

Fibonacci shows retracement levels where the price will tend to revert frequently.

Depending on the strength of the trend, different levels are more likely to work better with the Three Outside Up pattern. Here you can learn more about the different Fibonacci retracement levels.

Here’s how the strategy works:

You want to see the price on an uptrend
Then you wait for a decline, they always happen at some point
Pick your Fibonacci tool and draw the levels from the low to the high of the move
When the price hits a Fibonacci level and prints a Three Outside Up, that’s what you are waiting for
Go long when the price breaks the high of the last candle of the Three Outside Up
Set your stop loss and take profit levels, and expect a move to the upside

Here’s an example:

Strategy 6: Trading The Three Outside Up With Pivot Points

Pivot Points are automatic support and resistance levels calculated using math formulas.

If you are day trading, the Daily Pivot Points are the most popular, although the Weekly and Monthly are frequently used too.

Here’s how to trade the Three Outside Up pattern with Pivot Points:

Activate the Pivot Points indicator on your charts
Check which Pivot Points are under the price, those will tend to work as a support
Ideally, you want to see the price on an uptrend, although is not required
Wait for a decline of the price to a Pivot Point level
At that level, you want to see a Three Outside Up pattern appearing, meaning that the level is being rejected
Go long when the price breaks the high of the last candle of the Three Outside Up
Set your stop loss and take profit levels, and expect a move to the upside

It looks like this:

What Is The Success Rate Of The Three Outside Up?

According to the Encyclopedia of Candlestick Charts by Thomas N. Bulkowski (link), the Three Outside Up candlestick pattern has a success rate of 75%.

This is what you learned today

The Three Outside Up is a three-candle pattern.
To be valid, it must appear after a move to the downside.
It’s a bullish reversal pattern, meaning that it signs a potential reversal to the upside.
To increase the accuracy, you can trade the Three Outside Up using pullbacks, moving averages, and other trading indicators.
The winning rate of the Three Outside Up is 75%.

Now I want to hear from you.

Do you trade the Three Outside Up candlestick pattern?

Let me know in the comments below.