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A powerful three-candle bullish reversal that combines a Bullish Engulfing with a confirmation candle, offering very high reliability at bottoms.
The Three Outside Up is a three-candle bullish reversal pattern that builds on the Bullish Engulfing. Day 1 is a bearish candle continuing the downtrend. Day 2 is a large bullish candle that completely engulfs Day 1's body. Day 3 closes even higher, confirming the reversal.
What makes this pattern powerful is the confirmation element. A Bullish Engulfing alone can fail, but when Day 3 follows through with a higher close, it shows that the buying pressure from Day 2 wasn't a one-off event - momentum has genuinely shifted.
Day 1 is the status quo. Bears are in control, price closes lower, nothing unusual. Sellers feel comfortable, shorts are profitable.
Day 2 changes everything. The bullish engulfing candle opens below Day 1's close (gap down or lower open) but then reverses hard, closing above Day 1's open. This catches sellers off guard - their profitable positions are suddenly underwater. The wide range shows aggressive buying.
Day 3 is the verdict. If Day 2 was just a short squeeze or dead cat bounce, Day 3 would give it back. Instead, buyers follow through with another higher close. This confirms the sentiment shift and often triggers a cascade of short-covering and new long entries.
Standard: Enter at Day 3 close or Day 4 open once confirmation is clear.
Aggressive: Enter during Day 3 if price is trending higher and above Day 2's close.
Below the low of Day 2 (the engulfing candle). This is the point where the entire pattern is invalidated - if sellers can push below that low, the reversal has failed.
T1: Nearest resistance or previous swing high. T2: Measured move equal to the height of the three-candle pattern projected upward. T3: Trail remaining position using a moving average or structure.
Typically 1:2 to 1:3 depending on the size of the engulfing candle. Larger Day 2 candles mean wider stops but often signal stronger reversals.
The Three Outside Up is one of the more reliable candlestick reversal patterns because it includes built-in confirmation. But context still determines whether it leads to a sustained move or just a temporary bounce.
Compare Day 2's volume to the 20-day average. If it's at least 1.5x average, the pattern's success rate increases significantly.
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