Table of Contents

Table of Contents

Three Inside Up

“Mother, baby, and an elder brother ”  is a simple definition of three inside-up candlestick patterns.

This triple candlestick pattern refers to the formation of three candles. This candlestick pattern requires the formation of those three candles in a specified sequence. Below should be the sequence in which the three candles have to form so as to term it as three inside up.

Day 1: Mother – A big red (bearish) candle 

Day 2:  Baby – A significantly small green candle, wherein the open, low, close, high, etc.., are enclosed within the red candle.

Day 3: Elder brother – A big green candle that closes way above the second green candle.

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Example Of Three Inside Up Candlestick In Stock Technical Analysis.


From the above example, one can spot that there is a down move. A Bullish Harami is the one that has initially formed. This is further followed by a big green candle that closes above this Bullish Harami. 


Quick Note:


Check out this detailed blog on the Bullish Harami pattern, to know more about it in detail.


Why The Name Three Inside Up?


The candle duo formed on Day 1 and Day 2 forms a Bullish Harami, which implies a green candle enclosed.

(inside) in a red candle. Similarly, the Day 3 candle also closes above the Day 2 candle. Since the closing of the last candle happens above the second candle, hence the name “Three Inside Up”

Note:

The time frame depends on the trader. In this blog, we have taken a Daily time frame into account. The same can be applied for the rest of the time frames.


Ideal Trade Set Up To Trade Three Inside Up Candle Stick Pattern In Technical Analysis Of Stock Markets.


This triple candle stick pattern of the Three Inside Up should satisfy the below requirements.

  1. An existing downtrend or a down move.
  2. The first candle formed on Day 1 is a long bearish candle with a really huge body.
  3. The second candle which forms on Day 2 should be a small green candle that opens and closes within the actual body of the first red candle.
  4. Both the candles when combined on Day 1 and Day 2 should form a Bullish Harami pattern. 
  5. The third candle should close above the second candle’s close.

In a simplified way, in a selected time period,

  1. Downtrend.
  2. Big Black/red candle.
  3. Small white/green candle.
  4. Big green candle.

Setting Up Stop-Loss:


While setting a stop-loss for this trade, below are the steps that have to be followed.

  1. Take the low point of this candlestick trio. Let us name it L.
  2. Check out the respective value of the ATR (Average True Range) at this point. Subtract that value from L. 

The final value thus obtained is considered the stop loss.

Target:

Target can be set based on the previous resistance lines, and Fibonacci levels.

Advantages:

  • Just like other candlesticks in Technical Analysis Of Stock Markets, this Three Inside Up Candlestick, is also easy to spot. 
  • The risk/reward ratio is highly favorable, which implies that the reward is very high.
  • If used correctly, gives enormous profits.

Limitations:

  • Cannot be used in isolation.
  • Difficult to determine targets as there is no set way to fix targets.

Psychology Behind Three Inside Up Candlestick Pattern.

In Stock Market, when it comes to Technical Analysis Of Stocks, each and every indicator or strategy has psychology behind it.

Here, in this Three Inside Up Candlestick Trio, the first bearish candle shows that bears are in power. The closing price formed on Day 1 is much lower than the opening price. This signifies the increasing confidence of the bears.

The green candle formed on Day 2 opens and closes in between the Day 1 candle. This signifies the entry of bulls thus alarming the sellers for a possible uptrend.

Now, with the formation of another bullish candle on Day 3, the security(stock) thus continues to post gains. The closing price crosses and closes above the second day’s closing price. This indicates the intensification of the bulls thereby giving buying signals. The closing price of the candle formed on Day 3 will be higher than that of the previous two day’s candles. 

All these along with any other volume indicators, etc.., indicate the confirmation of bulls.

Trading Strategies That Can Be Combined With Three Inside Up:

1. Three Inside Up With Bollinger Bands In Technical Analysis Of Stock Markets.

In this trio, three inside candlestick, supported by, Bollinger Bands, increases both the confluence and confidence of a trade. Along with the formation of the three inside-up candlestick patterns, confirmation has to be taken with Bollinger Bands. 

In this Trading Strategy In The Stock Market, when the price touches the lower Bollinger band level along with this three inside-up candlestick pattern, traders can enter a long position.

This Trade-Set Up In Technical Analysis Of Stock Markets has a high probability of success. 

To simplify it, Bollinger Bands Trading Strategy In The Stock Market has to fulfill the below conditions.

  • A Three Inside Up Candlestick formation at the end of a downtrend. 
  • When the Bollinger Band indicator is applied to the price, the price with the Three Inside Up CandleStick should touch the lower Bollinger Band line. 

2. Three Inside Up Candlestick With RSI In Technical Analysis Course:

Any candlestick supported by the Relative Strength Index, termed RSI, increases the probability of a profitable trade.

In this RSI Trading Strategy In Technical Analysis, along with the formation of the three inside-up candlestick patterns, one has to check for RSI in this Trading Strategy In The Stock Market.

Due to an existing downtrend, RSI will also be in a downtrend. Now, exactly at the time of the formation of these three inside-up candlestick patterns, RSI should cut from below at a value of 30. In simpler terms, this trade setup requires, 

  • Three Inside Up Candlestick formation at the end of a downtrend. 
  • RSI>30.

Traders who don’t wish to trade with this candlestick pattern can take a long position at the end of a third candle. In the same way, this candlestick can be combined with any indicator. Be it trendlines, Fibonacci, etc..,

While trading in the same direction as the trend, this three-inside-up candlestick pattern can be highly effective. During an overall uptrend, looking for this three-inside-up candlestick pattern at the end of a pullback to initiate a trade can result in higher profits.

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