Understanding the Three Outside Up
What is the Three Outside Up?
The Three Outside Up is a bullish reversal pattern that indicates a potential change from a downtrend to an uptrend. It consists of three candles: two bearish candles followed by a bullish candle that completely engulfs the previous two candles. This pattern suggests that the buying pressure is overwhelming, and a reversal might be imminent.
How is the Three Outside Up Identified?
The Three Outside Up pattern is identified by:
- Two Bearish Candles: Two consecutive bearish candles with decreasing closes.
- Bullish Engulfing Candle: The third candle is bullish and engulfs the body of the previous two bearish candles.
When to Use the Three Outside Up
The Three Outside Up pattern is used to:
- Identify Potential Bullish Reversals: Spot possible trend changes from bearish to bullish.
- Assess Reversal Strength: Determine the strength of the reversal based on the engulfing candle.
- Adapt Trading Strategies: Adjust trading strategies to capitalize on the potential uptrend.
Formula Example
To identify the Three Outside Up pattern:
- Two Bearish Candles: Find two consecutive bearish candles.
- Bullish Engulfing Candle: Locate a third candle that opens below the low of the previous bearish candles and closes above the high of the previous bearish candles.
For example:
- If two consecutive bearish candles are followed by a bullish candle that closes above the high of the previous bearish candles, it may signal a bullish reversal.
Parameters
The parameters for identifying the Three Outside Up pattern include:
-
Data: Defines the type of data to use for the pattern.
- Value:
ohlc - Description: The pattern uses Open, High, Low, and Close prices.
- Value:
-
Previous N Candles: Number of preceding candles to check.
- Default Value: 1
- Min Value: 1
- Max Value: 300
- Description: Checks for the Three Outside Up pattern in the last N candles.
Conclusion
The Three Outside Up pattern is a powerful bullish reversal signal that can help traders identify potential shifts from a downtrend to an uptrend. By recognizing this pattern, traders can make informed decisions to potentially benefit from a bullish market reversal.