Three Inside Up Candlestick Pattern

The three inside up bullish reversal Japanese candlestick pattern loses $3.00 and $10.40 in the crypto and forex markets and makes $10.30 in the stock market on average per $100 risked.

But what if I told you there’s a way to trade this pattern across all markets profitably?

Would you be interested?

Keep reading if you want to learn how to make more money in the markets with this triple candlestick pattern.

What Is a Three Inside Up Candlestick Pattern?

Three Inside Up Candlestick Pattern Illustration

The three inside up candlestick pattern is a bullish reversal pattern. The pattern is supposed to indicate the weakness of the current downtrend and signal a possible reversal in the trend. 

Identifying the bullish three inside up pattern and understanding the underlying price action gives traders an advantage over less informed traders. Let’s discuss identifying the three inside up pattern in our candlestick charts.

How to Identify Three Inside Up Candlestick Patterns

Three Inside Up Candlestick Pattern Identification AAPL

The following are the requirements for a valid three inside up pattern:

  • The first candlestick in this pattern is bearish with a relatively long real body.
  • The second candle must have a relatively small body engulfed by the first candle.
  • The third bullish candle closes higher than the first candle’s opening price.
  • The pattern must occur during a downtrend.

The three inside up candlestick pattern occurs within Apple’s chart on March 1st, 2021.

The first bearish candle of the pattern shows the bears are still in control. However, the second candlestick of the pattern is engulfed within the prior candle’s real body showing indecision and consolidation. The third and final candle completes this bullish reversal pattern and closes higher than the first candlestick.

This bullish close might attract buyers into the market, thereby signaling a potential reversal.

If you’re a stock trader, then it may work out in your favor; however, you’re likely to lose money in the forex and crypto markets – and there’s a much better way to trade this pattern anyways…

How to Trade the Three Inside Up Candlestick Pattern

Three inside up candlestick patterns should be traded using a bullish mean reversion strategy in all markets.

Let’s first cover the three inside up candlestick pattern traditional trading strategy.

Three Inside Up Bullish Reversal Trade Setup

Three Inside Up Bullish Reversal Trade Setup DHR

The Danaher daily chart shows the three inside up pattern on 9 Apr. 2020. The price action is in a downtrend as it’s below the 50-day moving average. We see the first candlestick in the pattern is a large red candle.

The next candle shows some bullish action fully contained with the prior candle’s real body. Finally, the third candle closes above the first candle’s close completing the pattern.

Traditionally, traders enter the market with a long position once the price breaks the third candle’s high with a stop loss below the first candle’s low. 

In the example, this occurred on April 14th, 2020. The above example resulted in profits, which is typical for the stock market, but we can do better.

Three Inside Up Bullish Mean Reversion Trade Setup

The three inside up pattern appears yet again on the Amazon daily chart on March 1st, 2021. We see that price is in a downtrend below the fifty-day simple moving average. The first candle continues in the bearish direction. The next candle is fully engulfed by the first, with the third candle breaking bullish above the first candle’s open.

The bullish mean reversion trade setup waits for price to move below and then back above the pattern low with a stop loss of one ATR below the entry.

In our Amazon example, the entry occurred at $3,036.7 on March 3rd, 2021.

Does the Three Inside Up Candlestick Pattern Work? (Backtest Results)

Using the following rules, I backtested the three inside up candlestick pattern on the daily timeframe in the crypto, forex, and stock markets.

  • A close above the 50-day SMA constitutes an uptrend.
  • The ATR period is equal to the number of bars in the pattern.
  • Confirmation must occur within three days of the pattern signal.
  • I tested risk-reward ranges from 1 to 5.
  • The optimal risk-reward ratio is selected using profit per bar.

We see that the three inside up candlestick pattern works in the stock market as advertised, but it works even better in all markets as a bullish mean reversion setup.

Three Inside Up Bullish Reversal Backtest Results

cryptoforexstock
pattern_namethree inside upthree inside upthree inside up
pattern_categorybullish reversalbullish reversalbullish reversal
pattern_bars333
required_trenddowntrenddowntrenddowntrend
traded_asbullish reversalbullish reversalbullish reversal
stop_bar_typelowlowlow
entry_bar_typehighhighhigh
risk_reward521
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516949
pattern_tickers705074278
patterns208211341456
trades142151432378
confirm_perc0.680.720.78
wins2345117906
losses119106314472
win_perc0.1620.2980.553
avg_win_bars45.027.546.87
avg_loss_bars14.0314.567.51
cons_wins2512
cons_losses4108
edge-0.03-0.1040.103
cryptoforexstock
pattern_namethree inside upthree inside upthree inside up
pattern_categorybullish reversalbullish reversalbullish reversal
pattern_bars333
required_trenddowntrenddowntrenddowntrend
traded_asbullish reversalbullish reversalbullish reversal
stop_bar_typelowlowlow
entry_bar_typeclosecloseclose
risk_reward531
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516949
pattern_tickers705074278
patterns208210341547
trades191205037461
confirm_perc0.920.970.9
wins2848021309
losses163157016152
win_perc0.1470.2340.569
avg_win_bars40.4632.754.99
avg_loss_bars10.5615.266.06
cons_wins2511
cons_losses6107
edge-0.115-0.0680.139

Three Inside Up Bearish Continuation Backtest Results

cryptoforexstock
pattern_namethree inside upthree inside upthree inside up
pattern_categorybullish reversalbullish reversalbullish reversal
pattern_bars333
required_trenddowntrenddowntrenddowntrend
traded_asbearish continuationbearish continuationbearish continuation
stop_bar_typehighhighhigh
entry_bar_typelowlowlow
risk_reward555
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516949
pattern_tickers705074278
patterns208213542023
trades10362719037
confirm_perc0.50.290.45
wins5371765
losses9859017272
win_perc0.0490.0590.093
avg_win_bars26.232.6514.22
avg_loss_bars3.583.442.74
cons_wins215
cons_losses4517
edge-0.705-0.645-0.445
cryptoforexstock
pattern_namethree inside upthree inside upthree inside up
pattern_categorybullish reversalbullish reversalbullish reversal
pattern_bars333
required_trenddowntrenddowntrenddowntrend
traded_asbearish continuationbearish continuationbearish continuation
stop_bar_typehighhighhigh
entry_bar_typeclosecloseclose
risk_reward455
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516949
pattern_tickers705074278
patterns210213742354
trades204211238619
confirm_perc0.970.990.91
wins161193468
losses188199335151
win_perc0.0780.0560.09
avg_win_bars2.03.611.44
avg_loss_bars0.690.460.29
cons_wins127
cons_losses61227
edge-0.608-0.66-0.46

Three Inside Up Mean Reversion Backtest Results

cryptoforexstock
pattern_namethree inside upthree inside upthree inside up
pattern_categorybullish reversalbullish reversalbullish reversal
pattern_bars333
required_trenddowntrenddowntrenddowntrend
traded_asbearish mean reversionbearish mean reversionbearish mean reversion
stop_bar_typeatratratr
entry_bar_typepattern_highpattern_highpattern_high
risk_reward111
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516949
pattern_tickers705074278
patterns210213742252
trades454956930
confirm_perc0.210.230.16
wins252813473
losses202143457
win_perc0.5560.5680.501
avg_win_bars7.62.632.66
avg_loss_bars2.03.732.9
cons_wins246
cons_losses338
edge0.1160.1380.001
cryptoforexstock
pattern_namethree inside upthree inside upthree inside up
pattern_categorybullish reversalbullish reversalbullish reversal
pattern_bars333
required_trenddowntrenddowntrenddowntrend
traded_asbullish mean reversionbullish mean reversionbullish mean reversion
stop_bar_typeatratratr
entry_bar_typepattern_lowpattern_lowpattern_low
risk_reward111
timeframe2015-20212010-20212000-2021
bar_perioddailydailydaily
total_tickers39513516949
pattern_tickers705074278
patterns211213742345
trades422016575
confirm_perc0.20.090.16
wins271433857
losses15582718
win_perc0.6430.7110.587
avg_win_bars2.520.931.78
avg_loss_bars2.931.592.22
cons_wins237
cons_losses235
edge0.2830.4210.177

The Bottom Line

The three inside up candlestick pattern signals a potential bullish reversal. The data shows us that this is true in the stock market but not so much in the crypto and forex markets. But even more pronounced is that this pattern signals incoming volatility in all markets. The best traders will use this pattern as a mean reversion opportunity or wait for volatility to contract and then break for a longer-term move.

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