Hi Sam, thanks for asking the question.
Three inside up and three inside down refer to candlestick patterns that can be spotted on charts. In order for the pattern to take shape, three candles need to form in a specific order, signifying a momentum slowdown and a likely move in the opposite direction.
Below, you can see the example of both patterns:
The Three Inside Up is a bullish pattern, signifying that the declining asset could stop falling further and a price reversal can be expected. Those will help you identify the Three Inside Up pattern:
- The market should be declining.
- The first candle has a large black body
- The second candle has a small white body that opens and closes inside the first black candle
- The last candle is also white and closes above the close of the second one.
The Three Inside Down, on the other hand, is a bearish pattern. It indicates the end of an uptrend and a bearish reversal. Here are its features:
- The market should be moving up
- The first candle is white featuring a large real body
- The second candle is black featuring a small real body that opens and closes inside the real body of the first one.
- The third candle has a black body that closes below the close of the second candle.
Usually, investors don’t trade the Three Inside Up/Down pattern. The reason for this is because it merely serves as a signal for a price reversal. Also, I should note that this pattern is not always reliable because sometimes the price reversal is short-term and the price could easily revert back to its original direction.
Let me know if you have any more questions.