What is the frequency of occurrence for the Three Outside Down pattern?

It's not very common, although it certainly occurs more frequently in fast-moving markets and in shorter time frames.

When is the best time to trade with the Three Outside Down pattern?

It would be better to trade this pattern upon an appearance at significant resistance levels or on key Fibonacci points. One should verify it with other indicators.

Where is the Three Outside Down pattern commonly used?

This is specifically used in technical analysis to pinpoint the likely trend reversal after a sideways move in shares, currency pairs, and commodities.

Is the Three Outside Down pattern a bullish reversal?

No, it is actually a bearish reversal pattern, indicating a potential change of trend from up to down.

How do I identify the Three Outside Down?

A small bullish candle is followed by a larger bearish candle that engulfs the first, then a third bearish candle that closes lower than the second candle.

Three Outside Down Candlestick Pattern

Candlestick charts indicate the possibility of a change in the prices of financial securities, outline the possible change in trend in the market (up or down), and, thus, provide opportunities to investors for buying or selling. In this regard, the Three Outside Down Candlestick Pattern is a great indicator that an upward trend might be coming to an end.

What is a Three Outside Down Candle Pattern?

The Three Outside Down pattern usually occurs during an uptrend and involves three candles. It starts with one bullish candle, followed by two bearish candles. This pattern helps predict whether the trend might change. So spotting it correctly is important for trading against the current trend.

The Three Outside Down Pattern is a bearish pattern with the following features:

An upward market.
The first candle of the pattern is bullish.
The second is a big candle that goes down, covering the first one.
The third candle is also down and closes lower than the second.

Check Here to know How to Read Candlestick Charts.

How does a Three Outside Down Candlestick Pattern look like?

The Three Outside Down Candlestick Pattern looks as follows:

1st: The first is small and green in colour, indicating a slight upward move.

2nd: It is also a big red candle. It starts a bit higher than the first one and closes lower, making the first one completely part of its body.

3rd: It, too, is a red candle, but bigger. Not only does it start below the second one's middle, but it also closes much lower.

Importance of Three Outside Down Candle Pattern for Traders

The first candle forms during an upward trend, and the price closes above its opening level, boosting buyer confidence. In the case of the second candle, after rising, it falls back, which is an indication that things are going to turn around. This will see the buyers trying to safeguard their profits since the trend is turning around.

The price declines further in the third candle, breaking the range of the first candle to the downside, which is a confirmation of a bearish trend and time for sellers to act.

How to Trade using the Three Outside Down Candlestick Pattern?

Follow these simple steps to use Three Outside Down candle pattern in trading:

Note the Pattern: Look for a pattern where a small bullish candle is followed by a larger bearish candle that completely envelops the first one. The third candle should also be bearish and close below the second one.
Check for Confirmation: Use other tools like RSI, Moving Averages, or volume to confirm that the pattern is signaling a real trend change.
Place a Sell Order: If the pattern is confirmed, consider placing a sell order just below the low point of the third candle.
Placing Stop Loss: To protect yourself from losses, set a stop loss above the highest point of the pattern.

Remember that the trade will have some risks, so a good plan and consideration of market news and past performance must always be present.

Advantages & Disadvantages of Three Outside Down Candle Pattern

The table below shows the advantages and disadvantages of three outside down candlestick pattern:

Three Outside Down Candle Pattern
Advantages	Disadvantages
Works in Different Markets: What makes the Three Outside Down pattern versatile is the application of the tool in different markets, including stocks, forex, and commodities.	May Give False Signals: This, however, is true with all patterns, as they sometimes tend to indicate the other way incorrectly. Traders have to be careful in such situations.
Strong Signal for Downtrend: This pattern is the best indication that the uptrend will change into a downtrend, so it helps the trader take the decision in time.	Not Always Accurate: While useful, this pattern is not always exact. Be prepared to use other indicators for market changeability.
Strongest Confirmation: The three-candle structure of this pattern and especially the strong third bearish candle make this signal very reliable for a downtrend, bringing confidence to the traders to take action.	Different Interpretations: Different traders may interpret this pattern differently, and this can result in different conclusions as to whether it is strong or bearish/reliable.

Check More Bearish Chart Patterns

Bearish Pattern	Features
Bearish Engulfing Pattern	It forms when a small bullish candle is followed by a large bearish candle that completely engulfs the previous green candle
Three Black Crows Pattern	It is formed when three consecutive long-red candles with small wicks are visible
Hanging Man Pattern	It appears at the top of the uptrend as a single candle with a small body and a long lower shadow
Evening Star Pattern	It is a three-candlestick pattern that - Starts with a long bullish candle - Followed by a small-bodied candle that gaps up - And ends with a long bearish candle that closes well into the body of the first candle
Shooting Star Pattern	It is a reversal strategy which: - Is a single candlestick pattern with a small body, a long upper shadow, and little to no lower shadow
Bearish Doji Star Pattern	It is a two-candlestick pattern that: - Starts with a long bullish candle followed by a Doji (a candle with a very small body)
Bearish Harami Pattern	It is a two-candlestick pattern where: - A small bearish candle is completely engulfed within the body of the previous large bullish candle
Bearish Tweezer Top Pattern	- It consists of two or more candles with matching highs and appears at the top of an uptrend. - The first candle is usually bullish - And the second candle is bearish
Bearish Kicker Pattern	- It starts with a long bullish candle - Followed by a long bearish candle that opens below the previous candle’s opening price and closes lower
Bearish Three Inside Down Pattern	It is a three-candlestick pattern that: - Starts with a bullish candle - Followed by a smaller bearish candle that is completely within the first candle - And ends with another bearish candle that closes lower
Bearish Mat Hold Pattern	it is a five-candlestick pattern that: - Starts with a long bearish candle - Followed by three smaller bullish candles that stay within the range of the first candle - And ends with another long bearish candle that closes below the first candle
Dark Cloud Cover Pattern	It forms a long green candle followed by a red candle that opens above the previous high but closes below the midpoint of the green candle.
Bearish Abandoned Baby Pattern	It is a three-candlestick pattern that - Starts with a long bullish candle - Followed by a Doji that gaps up from the previous candle - And ends with a long bearish candle that gaps down from the Doji.