The three inside-down candlestick patterns signal a bearish trend reversal. It has three candlesticks, which include a long bullish candlestick and a smaller bearish candlestick, with the first and the third candlesticks being bearish.
In this post, we can understand the significance of this pattern and methods of trading it.
The three-inside-down candlestick pattern on a price chart indicates that a negative trend is about to reverse. It belongs to the genre of 'triple candlestick patterns', which are price chart formations that include three candlesticks and indicate either a trend reversal or a trend continuation.
It happens towards the end of a bullish upswing, signalling to traders that the positive trend is coming to an end. The three-sided-down pattern implies that bears are gaining market control. When traders spot the three inside down patterns, they change their trading tactics and resort to shorting in order to capitalize on the imminent bearish trend reversal as much as possible.
The 3 inside down candle pattern would be formed at the end of a bullish trend when the bears or the seller begin to gain over the bulls or the buyers. The buyers or the bulls are in a dominant place at the start of the pattern. The first candlestick is bullish in nature, and the second of three will mark a change in market sentiments as it closes below the close of the previous candlestick.
The second candlestick is either bullish or bearish, which is entirely contained in the body of the first candlestick. The close of the second candlestick is always below that of the first. The sellers would start to gain a winning edge over buyers from the second candlestick of the pattern.
The third candlestick is a bearish confirmation, with its close below the close of the second one. It will confirm the upcoming bearish trend reversal.
The three inside down candlestick pattern will look like a bearish Harami that is followed by a confirmation candlestick.
This candlestick pattern will be formed at the end of a bullish trend when the bears or the sellers begin to gain dominance over bulls and buyers. The buyers or the bull will be in dominance at the start of the three candlesticks, and the first candlestick will be bullish in nature.
The second candlestick of the three will mark changes in market sentiment since there is a close below the close of the previous candlestick.
The second candlestick is either bullish or bearish and is completely contained inside the body of the first candlestick. However, the second candlestick's close is invariably lower than the first. Beginning with the second candlestick in the pattern, sellers establish a winning advantage over buyers. The third candlestick is known as the bearish confirmation candlestick, closing below the second. The third candlestick signals a bearish trend reversal.
In order to trade this candlestick pattern, it is not enough to find a series of candles with the same shape but the location of where they appear.
The same shape appearing in different locations would have varied meanings. In the case of this pattern, the price needs to be going up first, which marks a bullish move. The Three Inside Down Candlestick Pattern appearing after a bullish move is a sign of a possible reversal to the downside.
This pattern is traded when the low of the last candle has been broken. You also need to protect yourself since it does not always happen as estimated, and place a stop loss for this reason.
To increase accuracy, you need to trade this candlestick pattern along with other forms of technical analysis or indicators.
The merits and demerits of this pattern are listed in the table below:
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Advantages |
Disadvantages |
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This pattern can be spotted easily on the price chart, and traders could use it effectively. |
The tendency for the Three Inside Down Candlestick Pattern to signal reversal is minute or insignificant. |
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It is an ideal indicator for short term and intraday trading, since it indicates minor trend changes that are useful for these attributes. |
It holds the tendency to produce false confirmations, and investors who use the pattern alone could incur losses. |
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It has the ability to function well with other commonly utilized technical indicators, like the moving averages and more. |