BAJAJ BROKING
March 01, 2025
6 mins read
The three inside down is a candlestick pattern that points towards a possible shift from an uptrend to a downtrend. This means the bulls lose control while the bears step forward. The pattern is made up of three candlesticks. The big green bullish candlestick is indicative of the strong buying momentum, the smaller red bearish candlestick is contained within the first and points to the bulls slowly losing out, and the third bearish candlestick closing lower and confirming that sellers are taking over.
The three inside down candlestick pattern appears at the end of an uptrend as a warning of a bearish reversal. When it comes to acting on this pattern, the best time is after the formation of the third candlestick. Anticipating further downward movement, some traders even take short positions at the end of the day to make the best of the trend.
As previously discussed, the three inside down candlestick pattern appears when there is an indication of an uptrend shifting towards a downtrend, i.e. a bearish reversal. The three inside down candlestick pattern comes under the triple candlestick patterns that indicate either a trend reversal or continuation.
The pattern makes an appearance at the very end of a strong uptrend. This further indicates that the bullish trend is losing steam while the bearish is taking over. Spotting the three inside down candlestick pattern helps traders shift their strategy to a short position to help them make profits from this shift.
The main reason for the appearance of the three inside down candlestick pattern is to indicate an end to an uptrend in the market as the bearish conditions start taking over the bullish. From being in control of the buyers to the sellers taking over, this is the shift that the pattern indicates.
The three inside down candlestick pattern is a part of the three candlestick pattern category. In this pattern, the first candlestick indicates a strong bullish candle that shows that the buyers are still in charge. The second candlestick is a smaller candle which can be either bullish or bearish and is fully enclosed within the first one and closes lower than the first candle’s close. This is where the trend shift starts taking shape. The third candlestick is a bearish candle, closing even lower and confirming the trend reversal from bullish to bearish.
There are three main steps involved in the reading of the three inside down candlestick patterns in technical analysis. This includes first analysing the price chart, identifying the three inside down candlestick patterns and the third is confirming the reversal. Here is a breakdown of all these aspects for you.
Analyse the Price Chart
The very first thing a trader needs to do is to observe and analyze the price chart of the security they want to invest in. Price charts are easily and freely available online. Traders can also use platforms like TradingView to track candlestick patterns.
The charts show how the market is performing, trends and in which way the price is moving. The price of most securities fluctuates daily. This is why it is important to study the charts so that traders can get a sense of whether buyers or sellers are in control.
Identify the Three Inside Down Pattern
The next step is to spot the three inside down pattern. The pattern has three candlesticks. The first, a long green bullish candle which shows strong buying pressure, the second, a smaller bullish or bearish candle that is fully contained inside the first one and a close below the first candle and the third, a red bearish candle closing lower than the second. The three of these combined, confirm the trend reversal.
Confirm the Bearish Reversal
The last step is confirmation. When the third candlestick closes lower than the second, it points towards a potential bearish trend reversal. When this happens, traders tend to take short positions as they expect a further downside movement.
The three inside down candlestick pattern forms at the end of a bullish trend. This is when sellers start becoming stronger and take control from buyers. The fact that the buyers are initially in charge is indicated through the first candlestick which is a strong bullish candle.
As the shift starts taking place, the second candle emerges. This candle is smaller and could be either bullish or bearish and is completely contained within the first one. This candle closes lower than the first candle’s close, signalling that the buying momentum is falling as the sellers gain the upper hand.
Finally comes the third candlestick which acts as the bearish confirmation candle. This closes even lower than the second candle.
Once traders have spotted the pattern, they also need to pay attention to where it appears on the chart. Even if the same pattern forms in different spaces on the chart, it can mean completely different things. To ensure that the pattern formed is valid, traders need to observe whether or not the price is trending upward which will signal a bullish move. The appearance of the Three Inside Down pattern after an uptrend suggests a possible reversal.
Traders usually enter a trade based on the pattern when the low of the third candlestick is broken. However, the market can be quite unpredictable and setting a stop-loss as protection from unexpected reversals is important.
It is also important for traders to not rely entirely on the pattern alone and to combine it with other technical analysis tools like trendlines, support and resistance levels, etc. for added confirmation.
Like any other pattern, the three inside down candlestick pattern also comes with its pros and cons. Here is a look at them:
Advantages | Disadvantages |
The pattern can easily be spotted on a price chart helping traders use it effectively. | The aptness with which the Three Inside Down Candlestick Pattern can signal reversal can be questionable. |
The pattern can be used by traders to indulge in short-term and intraday trading as it is able to indicate minor trend changes which can be useful for both these trading methods. | The pattern can produce false confirmations and if traders use this pattern alone to carry out trades they can incur losses. |
The good thing about this pattern is that it works well with other technical indicators and this is why it is important that traders stay open using them together to make informed investment decisions. |
With the help of the Three Inside Down candlestick pattern, traders can spot potential trend reversals in stocks and forex. The pattern signals a bearish reversal, indicating that the buyers are losing control as the sellers are gaining it. By identifying this pattern, traders are able to take short positions and make informed trading decisions. The pattern works best when combined with other technical indicators.
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Traders can spot this pattern after a bullish movement in the market. This pattern helps traders pinpoint small trend reversals and market sentiments as well.
The main rule of the three candles is that their base has three consecutive candlesticks.
The opposite of the three inside down candlestick pattern is the three inside up candlestick pattern.
The three inside down candlestick pattern forms at the end of a bullish trend. This is when sellers start becoming stronger and take control from buyers.
There are three main steps involved in the reading of the three inside down candlestick pattern in technical analysis. This includes first analysing the price chart, identifying the three inside down candlestick pattern and the third is confirming the reversal. Here is a breakdown of all these aspects for you.
The pattern works best when combined with other technical analysis tools but on its own, it can be a bit unreliable.
The pattern is made up of three candlesticks. The big green bullish candlestick is indicative of the strong buying momentum, the smaller red bearish candlestick is contained within the first and points to the bulls slowly losing out and the third bearish candlestick, closing lower and confirming that sellers are taking over.
The pattern is a bearish reversal pattern.
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