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Three Inside Out is a three-candle bearish trend reversal pattern.
A bullish candlestick is followed by a bearish candlestick that opens below the closing price and closes above the opening price of its previous candlestick. In other words, the body of the second bearish candlestick is within the body of its previous bullish candlestick. It is an Inside candle, or a Bearish Harami pattern that we discussed earlier.
Above pattern is followed by a bearish candlestick which closes lower than the body of the first bullish candlestick.
It is a bearish breakout pattern and known as a Bearish Three Inside Out pattern. It is a bearish trend reversal formation.
The pattern remains bearish as long as price is trading below the high price of the third candle of the pattern. If there are evidence of the supply near the high price of the third candle, the bearish trades can be planned in case of price retracement to that level or price consolidation.
Bearish Three Inside Out pattern is basically a Bearish Harami pattern breakout in the next candle itself. This pattern is stronger than the Bearish Harami pattern.
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This pattern can be plotted on the chart by adding it from the Add study menu in TradePoint & Patterns in RZone. The pattern is also available in the System Builder section. By combining this pattern with other patterns and indicators, you can create your own trading strategies. For any group of stocks and market segments, you can scan and backtest stocks based on those strategies.