Three Inside Up – Definition, How it Works, Types, Calculation, and Trading

The Three Inside Up candlestick pattern is a powerful tool for spotting bullish reversals in downtrending markets. Formed by a specific sequence of three candles, it provides traders with a visual signal that seller pressure is fading and buyers may soon take control. Whether you’re trading stocks, forex, crypto, or commodities, recognising this pattern can give you a timely edge. In this article, we’ll explore how the pattern works, when to use it, and how TradeSmart can help you trade it with greater accuracy.

What is the Three Inside Up Candlestick Pattern?

The Three Inside Up pattern is a widely used bullish reversal signal in technical analysis. It appears after a prolonged downtrend and suggests that bearish momentum is fading, paving the way for a potential upward shift.

This pattern consists of three candles and is particularly useful for traders looking to spot early signs of a reversal. It indicates a possible change in market sentiment, where sellers lose control, and buyers begin to regain dominance.

Recognising this pattern can help traders enter long positions with more confidence, especially during volatile market conditions. With TradeSmart’s pattern recognition features, spotting such setups becomes more efficient.

How is the Three Inside Up Pattern Formed?

• First Candle (Bearish): A large red candlestick confirms the ongoing downtrend. It reflects strong selling pressure and represents the peak of bearish control.
• Second Candle (Bullish and Inside): The next candle is bullish and forms entirely within the body of the first candle. It’s often smaller, showing hesitation among sellers and the beginning of buyer activity.
• Third Candle (Bullish Confirmation): The final candle is another bullish candle that closes above the high of the first candle. This move confirms a reversal and signals that bulls have taken over the momentum.

This pattern closely resembles the bullish harami formation, with the third candle acting as confirmation of trend change. For traders using TradeSmart, real-time chart alerts can help identify these setups as they unfold.

When is the Best Time to Trade Using the Three Inside Up Pattern?

Buyers: The ideal entry point for buyers is immediately after the third candle closes. A long body on this third candle further strengthens the signal. If the body is short, traders might wait for resistance break or volume confirmation.

Sellers: Sellers holding short positions use the Three Inside Up pattern as a signal to exit. Especially with strong bullish follow-through, this pattern indicates the downtrend is likely ending.

Understanding these dynamics helps traders use the Three Inside Up pattern effectively for both entry and exit strategies.

What are the Advantages of the Three Inside Up Candlestick Patterns?

• Clear and recognisable structure: Easy to identify with a visually distinct three-candle setup.
• Effective for intraday and short-term trades: Common on 15-minute and hourly charts for quick entries with defined risk.
• Stronger with indicators: Combines well with RSI, moving averages, or Fibonacci levels for higher accuracy.

What are the Disadvantages of the Three Inside Up Candlestick Pattern?

• Pattern Completion Is Essential: Incomplete patterns are unreliable and can mislead traders.
• False Breakouts: May give false signals during low volume or sideways markets.
• Requires Confirmation: Needs support from indicators like RSI, volume, or MAs to improve reliability.

How Often Does the Three Inside Up Candlestick Occur?

The Three Inside Up candlestick is relatively rare. It appears more frequently:

• In volatile assets like tech and growth stocks.
• Less often in low-volatility sectors like utilities.
• Primarily after extended downtrends and during oversold conditions.

Where is the Three Inside Up Commonly Used?

• Stock Markets: Helps time reversals on hourly or daily charts.
• Forex Markets: Useful in long-lasting trends with added confirmation from trendlines or moving averages.
• Commodity Markets: Detects reversals in volatile instruments like gold or oil.
• Cryptocurrency Markets: Helps navigate fast momentum swings when used with RSI or MA crossovers.

What is the Opposite of the Three Inside Up Candlestick?

The opposite pattern is the Three Inside Down, which appears at the top of an uptrend:

• A large bullish candle.
• A smaller bearish candle inside the first.
• A third bearish candle that closes below the previous two, confirming the reversal.

What are Other Types of Doji Candlestick Patterns besides Three Inside Up?

• Gravestone Doji: Appears at uptrend tops. Long upper wick shows buyer rejection and possible reversal.
• Dragonfly Doji: Appears at downtrend bottoms. Long lower wick shows selling rejection, suggesting bullish reversal.
• Long-Legged Doji: Reflects extreme indecision and often leads to breakouts. Confirm with volume.
• Doji Star: Appears after a long candle and signals a potential pause or reversal.
• Hammer and Hanging Man: Hammer appears after downtrends and signals bullish reversal. Hanging Man appears after uptrends and signals bearish weakness.

Use Doji patterns in context with trends, volume, and RSI for stronger signals. TradeSmart’s overlay features make this easier to apply in real-time.

Conclusion

The Three Inside Up candlestick pattern is a reliable indicator for anticipating upward reversals, especially in short-term trading strategies. Its recognisable structure makes it accessible for traders at all levels, and when used in conjunction with indicators like RSI, moving averages, or volume analysis, its reliability increases significantly. With TradeSmart’s intuitive platform, real-time alerts, and layered technical tools, you can make smarter, faster trading decisions. Visit TradeSmart now and take control of your strategy with confidence.