In addition to easy price observation, the advantage of using a Japanese candlestick chart is providing highly accurate candlestick patterns. Experienced traders often consider Japanese candle patterns as reliable entry signals. Candlestick patterns consisting of multiple candles, such as the Three Inside Up, offer high accuracy and effectiveness because they represent a multi-stage shift in market sentiment.

This article will answer in detail what a Three Inside Up candle pattern is. We will analyze its characteristics, market psychology, variations, and how to trade using this pattern in binary options and forex trading.

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A video about Three Inside Up candlestick pattern

Watch this visual analysis video to see the pattern in action on live trading charts:

What is Three Inside Up candle?

The Three Inside Up is a bullish reversal candlestick pattern that usually appears at the end of a downtrend. It indicates that the selling momentum has exhausted itself, the downtrend is likely over, and a new uptrend has begun.

Structurally, this pattern is a confirmation of the Bullish Harami pattern. While a standard Harami only suggests a potential pause or reversal, the addition of the third bullish candle confirms that buyers have taken full control of the price action.

Characteristics of Three Inside Up candle

To identify a standard and high-probability Three Inside Up pattern on your chart, look for these specific criteria:

• 1st Candlestick: A long-body bearish (red) candlestick that continues the existing downtrend. This represents the final push from sellers.
• 2nd Candlestick: A smaller bullish (green) candlestick. Crucially, its real body must be completely contained within the real body of the first bearish candlestick (conforming to a Harami). Ideally, it should close near or above the 50% midpoint of the first candle.
• 3rd Candlestick: A strong bullish (green) candlestick that closes above the open (high of the body) of the first bearish candlestick. This confirms the reversal.

Market Psychology behind the pattern

This pattern represents a classic three-stage transition in market sentiment:

1. On the first day (or candle), the bears are in complete control, pushing the price down to form a long bearish candle. This creates a climax of bearish sentiment.
2. On the second day, buying pressure emerges. The price opens higher (or flat) and ends up closing higher. Because the body of the second candle is small and stays “inside” the first candle, it shows that the bears are no longer strong enough to keep pushing the price lower. Indecision sets in.
3. On the third day, the bulls show their strength. Buyers push the price significantly higher, driving the close above the opening price of the first candle. This shows a complete transfer of power from sellers to buyers.

Variations of the Three Inside Up candlestick

In real trading, markets are rarely perfect. You will frequently observe variations that still carry the same trade logic:

• Shadow variations: The shadows (wicks) of the second candle can exceed the body of the first candle, but the real body must remain strictly inside.
• Body size variations: The second candle can be smaller or slightly larger, as long as it does not exceed the first candle’s open/close boundaries.
• Variation confirmation: As long as the third candle is a strong bullish green candle that closes above the first candle’s opening body level, the pattern is valid.

Three Inside Up vs. Three Inside Down

It is helpful to compare this pattern with its opposite counterpart to understand both sides of market reversals:

How to trade with Three Inside Up: 2 High-Accuracy Strategies

To protect your capital and increase your winning rate, avoid trading the pattern in isolation. Instead, combine it with these indicators:

Strategy 1: Combine with Support Zones

When the price is in a downtrend and reaches a major Support zone, it has a high tendency to bounce back. The appearance of the Three Inside Up pattern right at this Support zone serves as our entry trigger.

• Chart setting: 5-minute Japanese candlesticks.
• Expiration time: 5 minutes (enter on the candle immediately following the pattern).
• Rule: Open an UP option only if the pattern completes at or just above the Support line.

Strategy 2: Combine with SMA30 indicator

The Simple Moving Average (SMA30) acts as dynamic Support. In a healthy uptrend, the price will frequently pull back to the SMA30 and bounce back up. A Three Inside Up pattern forming on the SMA30 confirms this bounce.

• Chart setting: 5-minute Japanese candlesticks + SMA30 line.
• Expiration time: 15 minutes or above (gives the trend more room to develop).
• Rule: Open an UP option when the price pulls back to the SMA30 and forms a Three Inside Up pattern directly on the SMA30 line.

Important rules when trading the pattern

• Do not trade in sideways markets: The Three Inside Up pattern is a reversal signal. If the market is moving sideways (consolidation), it will generate false signals.
• Wait for the close: Never enter a trade before the third candle closes. A last-second drop can turn a promising pattern into a failed signal.
• Analyze with volume: Ideally, the third bullish candle should have higher volume than the second candle, showing that buyers are putting real money behind the move.
• Practice on Demo accounts: Always test these strategies on a demo account on platforms like IQ Option or Olymp Trade before committing real capital.

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Frequently Asked Questions: Three Inside Up Pattern