Three Inside Up Candlestick Pattern – Psychology

The formation of this pattern generally shows a change in the market sentiment and the appearance of this pattern during a downtrend indicates a potential reversal in the security.

During a downtrend, the first long-bodied red candle suggests that the sellers have a firm grip on the security. However, the appearance of the green candle within the prior red candle suggests that the selling pressure is weakening and the downtrend might potentially reverse.

Finally, the third candle, that is the green candle in the pattern closes above the first red candle. This gives a confirmation of the change in market sentiments and the buyers taking over the security.

Three Inside Up Candlestick Pattern – Trading Ideas

Traders must ensure that the prior trend before the formation of this pattern is a downtrend. Once this pattern is formed in a downtrend, the following are the guidelines to take a trade:

• ENTRY: When the price of the security starts trading above the close price of the third candle of the Three Inside Up Candlestick Pattern, traders can take a long position in it.
• TARGET: Traders can exit the trade when the price of the security reaches the immediate resistance zone. Once this level is reached, one can also book partial profits in the trade and hold on to the remaining position until the next resistance level.
• STOP LOSS: Traders can place the stop loss near the low price of this pattern.

Three Inside Up Candlestick Pattern – Example

In the above one-day chart of JIO FIN SERVICES LTD., we can observe the formation of the three inside-up candlestick patterns at the bottom of a downtrend. As discussed in this article, the price saw a change in trend from bearish to bullish after the formation of this pattern.

At the time of the formation of this pattern, traders could have taken a long position when the price was above Rs. 215.85 and the stop loss was at Rs. 204.35. This is the real example of the Three Inside Up Candlestick Pattern

Three Inside Up Candlestick Pattern – Strengths

There are situations where the formation of this pattern will have a stronger indication of a bullish reversal like when this pattern is formed in a strong support zone. The price of the stock would have already reacted to that zone multiple times in the past and the formation of this pattern in that zone implies that there is a demand for the stock near that price.

This pattern can also be combined with the RSI indicator to get a stronger bullish reversal indication. At the time of formation of this pattern, if the RSI indicator is also near or below the 30 zone, this would give a stronger indication of bullish momentum as RSI being in an oversold region would mean that the price has been sold for a long time and is at a good price to buy. Thus, the combination of these two can indicate which will have a higher probability of succeeding.

Read more: Fundamental Analysis Of Paramount Communication

Conclusion

The Three Inside Up candlestick pattern is a powerful tool for traders seeking to capitalize on bullish reversals in the market. By understanding its formation, interpretation, and strategic implications, traders can effectively incorporate this pattern into their trading arsenal.

However, like any technical analysis tool, it is essential to consider other factors such as market context, fundamental analysis, and risk management principles when making trading decisions.

Written by Praneeth Kadagi

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