Introduction

Similar to the “Inside Up,” the Three Outside Up is a confirmation pattern. It takes the classic Bullish Engulfing pattern and adds a third day of buying to seal the deal.

How to Identify It

1. Candle 1: Small Red candle.
2. Candle 2: Large Green candle that engulfs the first one (Bullish Engulfing).
3. Candle 3: Another Green candle that closes higher than Candle 2.

The Psychology

The Engulfing candle (Day 2) was the shock to the system. The third candle (Day 3) is the follow-through. It proves that the Engulfing move wasn’t a fluke or a “dead cat bounce.”

Trading Strategy

• Entry: This is a momentum trade. Enter on the break of the third candle’s high.
• Stop Loss: Below the low of the second candle (the Engulfing candle).