There are many candlesticks patterns a trader can recognise on the price chart. Later, they can be used to find a good moment for opening a trading position. But first, a trader must know how the pattern looks like and what it is saying. From todays article, you will learn how to identify and utilise the Three Inside Pattern.
Introduction to the three inside pattern
The pattern which is called the three inside pattern consists of three subsequent candles. The information they carry is that the current momentum of the trend is weakening and you may expect the price to go in the opposite direction.
This change, however, is often not particularly significant. Still, you can use the pattern in the general trend context and catch price retracements.
We can distinguish two kinds of the formation, the three inside down and the three inside up patterns.
The three inside down pattern
This type of the three inside candlesticks pattern may be observed at the top of the uptrend. The first candle that forms the three inside down pattern is a long bullish one. The second one is submerged by the leading candle and is small and bearish. The last, third candle is also bearish but its closing is situated beneath the second candles closing and the first candles opening.
You can now expect the trend to reverse and the price to fall.
The three inside up pattern
At the bottom of the downtrend, you may search for the three inside up pattern. This time, the first candle is large and bearish. The next candle is a small bullish one completely absorbed by the first candle in the formation. The last, bullish candle closes above the second candles closing and the first candles opening.
When the three inside up pattern appears, you can assume the uptrend is coming.
Trading with the three inside patterns on IQ Option
You can only utilise the appearance of the three inside pattern as information about a rather short change in the trend direction. Also, you can use this formation to open a transaction. Here is how.
Entering a short trade with the three inside down pattern
The bearish three inside down pattern appears on the top of the uptrend. It belongs to the group of the trend reversal patterns so you may expect the price will soon fall.
You should open a short position when the third candle in the formation is about to close or when the next candle begins to develop.
When you are trading currency pairs (CFDs) a stop loss should be set over the first, second or third candles high. It is going to depend on how big risk you are willing to bear. When trading options, keep the position open at least three times as long as the timeframe of the chart you are using.
Entering a long trade with the three inside up pattern
The bullish three inside up pattern can be found at the bottom of the downtrend. It signals the reversal of the trend.
Open a long position when the last candle in the formation is about to close or when the next candle begins to develop.
When you are trading the CFDs, your stop loss should be placed below the first, second or third candle of the formation, depending on the amount of risk you tolerate. When trading options, keep the transaction open for at least three times longer than the timeframe of the chart you are using.
Final words on the three inside pattern
The three inside down and up patterns consist of three consecutive candles. Their appearance gives a signal about minor trend change. You can find it in any liquid market.
The three inside down pattern is a bearish formation and signals the upcoming downtrend. You can open a short position with it.
The three inside up pattern is a bullish one and gives information that the uptrend is nearing. Therefore, you may open a long position with it.
You may use an additional method such as technical indicators, a trailing stop loss or a different candlesticks pattern to identify the best moment to leave the trade.
IQ Option offers a free demo account which is an excellent place for practising recognising and trading with the three inside patterns. This account is supplied with virtual cash so you do not risk your own money. You get, though, the time to work on your trading skills.
I would be happy to hear if you have any experience with trading with the three inside down and up patterns. Are you familiar with them or they are totally new to you? Tell me in the comments section down below.
