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Three outside down is a highly reliable bearish market reversal pattern, which indicates the end of an existing uptrend and the start of a new downtrend. This three candlestick formation is regarded as the confirmation of bearish engulfing pattern; because the first two day’s candlesticks form bearish engulfing pattern and the third candlestick confirms the trend reversal.


The requirements of bearish three outside down pattern include,

• The market should be characterized by a significant uptrend.
• On first day there is a bullish (white/colorless) candlestick taking the price to new highs.
• On second day there is a long bearish (black/colored) candlestick, the real-body of which totally engulfs the real-body of first day candlestick. Thus forming the bearish engulfing pattern.
• Third day is also a bearish day with lower closing than the second day.

Bearish three outside down candlestick pattern forms when bears take control of the market after a period of long bullish activity. Two consecutive bearish days with closes below than the previous day is a clear indication of bearish market reversal.

Bearish three outside down formation is highly reliable; reliable than bearish engulfing pattern. The reliability can increase with significance of previous uptrend, with increase in real-body and trading volume of second day candlestick and with lower close on third day. Since bearish three outside down pattern is confirmation of another pattern, most traders do not look for other confirmations. The suggested confirmations include a downside gap, lower close or bearish candlestick on day four.

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