Three Inside Up Candlestick Pattern: Meaning and Formation

What is the Three Inside Up Candlestick Pattern?

The three inside up candlestick pattern is a bullish reversal formation that typically appears at the end of a downtrend.

It consists of three candles that collectively signal a potential shift in market sentiment from bearish to bullish.

This pattern is particularly important for traders looking to identify early entry points before a price rebound.

How Is the Three Inside Up Candlestick Pattern Formed?

The pattern develops over three trading sessions:

• First Candle: A large bearish (red or black) candle that continues the current downtrend.

• Second Candle: A smaller bullish (green or white) candle that forms within the body of the first candle, often indicating indecision or weakening momentum.

• Third Candle: A strong bullish candle that closes above the high of the first candle, confirming the reversal signal.

This structure reflects a gradual shift in control from sellers to buyers.

How Important Is the Color of the Three Inside Up Candlestick Pattern?

The color plays a crucial role in interpreting the candlestick pattern.

The first candle must be bearish (showing continued selling pressure), while the next two should be bullish.

This color contrast visually confirms the transition from downward (bear market) to upward momentum (bull market), making it easier for traders to recognize the reversal.

What Does the Pattern Signal?

The three inside up signals a potential reversal of a bearish trend. It suggests that the bulls are regaining control, and a price increase could follow.

However, as with any pattern, it is best used alongside other technical indicators or volume analysis to confirm the breakout.

When Does a Three Inside Up Candlestick Happen?

This pattern most commonly occurs at the bottom of a downtrend or during a pullback within a broader uptrend.

Its appearance can be especially meaningful when it forms near key support levels or after a prolonged period of selling pressure.

How Often Does Three Inside Up Candlestick Occur?

While not the most frequent pattern, the three inside up candlestick pattern does appear reliably in technical charts, particularly in markets with strong price swings.

It is more commonly seen in daily and weekly timeframes, where trends are better defined. However, its rarity compared to simpler patterns also adds to its strength when it appears.

What Is the Opposite of Three Inside Up Candlestick Pattern?

The opposite of the three inside up candlestick pattern is the three inside down.

The three inside down candlestick pattern is a bearish multi-candle pattern signaling a possible price trend reversal from an uptrend to a downtrend.

Just as the three inside up is a bullish reversal signal, its opposite suggests weakening buying pressure and growing selling momentum.

This technical analysis pattern forms on a Japanese candlestick chart when the market transitions from bullish control to bearish dominance, often appearing after a prolonged rally.

Three Inside Up Candlestick Pattern in Technical Analysis

The Three Inside Up is a classic bullish reversal signal used in technical analysis. Here are some things to consider before trading it.

How To Read Three Inside Up Candlestick in Technical Analysis?

To correctly interpret this inside bar setup on a Japanese candlestick chart, follow these steps:

1. Look for a defined downtrend prior to the pattern.

2. Identify the first large bearish candle, this reflects the existing bearish momentum.

3. The second candle should be bullish and completely within the first candle’s body, forming the classic "inside bar".

4. The third candle, known as the confirmation candle, must be bullish and close above the high of the first candle, providing a strong candlestick reversal confirmation.

5. For greater accuracy, assess supporting indicators that validate the emerging market momentum shift.

When Is the Best Time to Trade Using Three Inside Up Candlestick?

The ideal time to act on this bullish reversal signal is after the third candle closes and confirms the price trend reversal. You should always confirm to increase accuracy.

Entering a long position immediately after the confirmation candle forms allows you to capture the early stages of an uptrend, especially in markets known for strong price swings.

Where Is the Three Inside Up Candlestick Pattern Commonly Used?

The Three Inside Up pattern is widely used across various markets:

• Stock charts, particularly in medium to long-term setups using technical analysis patterns

• Forex markets, where traders seek signs of market momentum shifts

• Crypto trading, where fast reversals are frequent and multi-candle patterns offer clearer entry points

• Commodities, where price movements tend to follow defined trend reversals

This candlestick pattern is especially effective when combined with trendlines, moving averages, or volume indicators that confirm the bullish momentum.

How to Trade the Three Inside Up Pattern Candlestick Pattern

Trading the three inside up candlestick pattern requires strategic timing and confirmation to capitalize on its bullish reversal signal.

Three Inside Up Candlestick Pattern Entry Signal

The entry signal is triggered after the third candle closes above the high of the first bearish candle.

This confirmation candle indicates that the market momentum shift has gained strength.

• Enter a long position at the open of the next candle following the third bullish bar

• Confirm the pattern with additional tools such as technical indicators

• Ensure the setup appears in a context where a price trend reversal is plausible (e.g., near a support zone)

Exit Signal and Stop-loss Placement

Effective exit signals and risk controls are essential to managing trades around the three inside up candlestick pattern.

Here’s how:

• Stop-loss placement: Set a stop-loss order just below the low of the first candle. This protects against false breakouts and ensures tight risk control.

• Exit strategy: You can choose between:

  • Exiting at the next resistance level

  • Using a trailing stop to lock in profits while allowing the trend to run

  • Combining with Fibonacci retracement levels for dynamic exits

This structured exit approach maximizes the benefit of a successful candlestick reversal confirmation.

Three Inside Up Candlestick Pattern Profit Targets

Determining profit targets involves analyzing the broader trend and market conditions. Consider:

• Targeting a risk-to-reward ratio of 1:2 or higher

• Using previous swing highs or moving average levels as benchmarks

• Incorporating volume analysis to anticipate the strength of the bullish move

If the three inside up candlestick pattern occurs after a long downtrend, the first significant resistance or trendline break may serve as a practical profit zone.

Best Indicators to Use with the Three Inside Up Candlestick Pattern

While the Three Inside Up is a strong standalone Japanese candlestick chart signal, pairing it with the right indicators enhances reliability.

Top indicators include:

• Relative Strength Index (RSI indicator): Confirms if the market was oversold before the reversal

• Moving Averages (MA or EMA): Help identify larger trend direction and dynamic support/resistance

• Moving Average Convergence Divergence (MACD Indicator): Validates the market momentum shift with signal line crossovers

• Volume Indicators: A spike in volume on the third candle adds weight to the confirmation candle

• Bollinger Bands: A breakout from the lower band in conjunction with this pattern can add further credibility

Using these tools increases the likelihood that the Three Inside Up pattern will lead to a sustained bullish move.

What Are the Advantages of the Three Inside Up Candlestick Pattern?

The Three Inside Up pattern provides several compelling advantages for traders:

• Strong Bullish Reversal Signal: It offers clear visual confirmation of a downtrend to uptrend signal.

• Enhanced Market Context: As a multi-candle pattern, it gives more context than single candlestick formations like hammer candlestick or dojis.

• Easy to Spot on Charts: Especially effective on daily or weekly timeframes in trending markets.

What Are the Disadvantages of the Three Inside Up Candlestick?

Despite its benefits, the pattern has some limitations:

• Rare Occurrence: Compared to simpler patterns, it doesn't appear as frequently.

• Short-Term Reversal: It may indicate only a temporary price trend reversal rather than a long-term change.

• Loses Impact in Noisy Markets: In high-volatility or news-driven environments, the pattern's signal can be unreliable.

Conclusion

The three inside up candlestick pattern is a useful pattern for traders looking to detect a bullish reversal after a downtrend.

While it provides clear visual cues, it is most effective when confirmed with technical indicators and applied in markets showing stable trends. By understanding how and when to use it, traders can improve decision-making and identify better entry opportunities.