The three outside up candlestick pattern is a three-candle bullish reversal pattern that appears at the end of a downtrend, signaling a trend reversal. It forms when a bearish candle is followed by a long bullish candle whose body engulfs it, and then by a second bullish candle that closes higher than the one before.
Traders either buy when the third candle closes, buy on a breakout above the third candle's high, or place the stop loss just below the low of the second candle. Each method is covered step by step below.
What Is a Three Outside Up Candle Pattern?
The three outside up is a bullish reversal pattern made of three consecutive candles. It only counts when it forms after a downtrend, because it shows that the downtrend may be ending and an uptrend may be starting.
The pattern takes three candles to complete. On a daily chart that is three trading days, and on a 4-hour chart it is 12 hours.
The pattern was introduced by Gregory Morris as an extension of the two-candle Bullish Engulfing pattern. The first two candles of a three outside up are a Bullish Engulfing, and Morris added the third candle as confirmation to improve on the two-candle version.
The name comes from the second candle. Its body extends outside the first candle's body at both ends, so the first candle sits fully inside it, and "up" is the direction price is expected to move next.
Several bullish reversal patterns share parts of this structure. The table below shows where they differ.
Pattern | Candles | What the second candle does | Where confirmation comes from |
|---|
Three outside up | 3 | Long bullish candle whose body engulfs the first candle's body | Third candle closes higher than the second candle |
Bullish Engulfing | 2 | Long bullish candle whose body engulfs the first candle's body | Needs the next candle or another tool |
Three Inside Up | 3 | Small bullish candle that stays inside the first candle's body and closes above its midpoint | Third candle closes above the first candle's open |
Three White Soldiers | 3 | Long bullish candle that opens inside the first candle's body and closes higher | All three candles are bullish, with no bearish first candle |
Morning Star | 3 | Small-bodied candle that gaps below the first candle | Third candle closes above the midpoint of the first candle |
Each of these patterns has its own guide if you want to compare the rules in more detail.
How Do You Identify the Three Outside Up Candlestick Pattern?
Check the trend first. The three outside up needs a clear downtrend before it, with lower highs and lower lows leading into the first candle. The same three candles in the middle of a sideways range are unreliable as a reversal signal.
Candle | Requirement | What it shows |
|---|
First candle | Bearish candle that continues the downtrend. It can be any size, and a doji is allowed except a four-price doji | Bears are still in control |
Second candle | Long bullish candle whose body engulfs the first candle's body. A doji or spinning top does not qualify | Bulls take over and erase the first candle |
Third candle | Bullish candle that closes higher than the second candle | Buying pressure continues and confirms the reversal |
The engulf is measured on the candle body, the part between the open and the close. The shadows of either candle do not need to be engulfed, and their length does not affect whether the pattern is valid.
Important: The second candle's body must engulf the first candle's body, and the pattern only counts after a downtrend. |
In practice, the second candle opens level with the first candle's close and completes the engulf by closing above the first candle's open. That still counts as a valid three outside up.
Volume on MT4 and MT5 forex charts is tick volume, a count of price changes, because spot forex has no central exchange. Rising tick volume on the second candle is a useful sign that more traders took part in the reversal.
What Is the Psychology Behind the Three Outside Up Pattern?
The first candle closes lower than it opens, showing strong selling pressure as the downtrend continues.
The second candle opens near the first candle's close, then climbs above the first candle's open. This warns the sellers, because a full session of selling has been erased, many traders have taken profits or tightened their stops.
Since sell positions must be closed by buying, this adds to the buying pressure from bulls. This is why the second candle is often long.
The third candle opens and closes higher, and often posts a new high above the second candle. That higher close shows bulls kept control after the reversal, which is the confirmation traders wait for before acting on buy signals.
Three Outside Up vs Three Outside Down: What Is the Difference?
The three outside down is the bearish mirror of the three outside up. It forms after an uptrend with a bullish first candle, a long bearish second candle whose body engulfs the first, and a bearish third candle that closes lower than the second.
Feature | Three outside up | Three outside down |
|---|
Trend before the pattern | Downtrend | Uptrend |
First candle | Bearish | Bullish |
Second candle | Long bullish candle, body engulfs the first | Long bearish candle, body engulfs the first |
Third candle | Closes higher than the second candle | Closes lower than the second candle |
Signal | Bullish reversal | Bearish reversal |
Stop loss | Just below the low of the second candle | Just above the high of the second candle |
Both belong to the same pair of three outside candlestick patterns, and traders apply the same rules in opposite directions. The three outside down has its own guide.
How Do You Trade the Three Outside Up Candlestick Pattern?
A trading setup plan for the three outside up has four parts: confirmation, entry, stop loss and profit target. Each one uses a fixed reference point on the chart.
How Do You Confirm a Three Outside Up Pattern Setup Before Entering?
Look for at least one piece of confirmation from outside the three candles. Good examples are the pattern forming at a known support level, a breakout above a nearby trendline, a breakout with volume spike, RSI turning up from below 30 or all of the above.
Then mark the nearest resistance level above the pattern. It decides whether the trade has room to reach its target, and it is the check that separates the two examples later in this guide.
Where Do You Enter a Three Outside Up Trade?
There are two common entries. The first is to buy when the third candle closes, which gets you in earlier at a lower price.
The second is to wait for the fourth candle and buy only on a breakout above the high of the third candle. This filters out patterns that stall straight away, at the cost of a higher entry price.
A buy stop order above the third candle's high can also fill a few pips higher than its trigger if the breakout happens on a news release or at a session open. That slippage widens the distance to your stop loss.
Where Should You Place the Stop Loss on a Three Outside Up?
Place the stop loss just below the low of the second candle. That low is where bulls took over, so a move below it means the reversal has failed.
Leave a small buffer, such as a few pips on EUR/USD, so a brief spread widening does not trigger the stop.
How Do You Set a Profit Target for a Three Outside Up Trade?
A common target is a 1:2 risk/reward ratio, where the target sits twice as far from entry as the stop loss. Other options are a fixed percentage gain, the nearest resistance level, or holding until the uptrend shows signs of ending.
If the nearest resistance level is closer than your 1:2 target, price is likely to stall there first. Either use the level as your target and accept a smaller reward, or skip the trade.
How Does the Three Outside Up Stop Distance Affect Position Size?
Waiting for the third candle has a cost that is easy to miss. By the time the third candle closes, price is further from the second candle's low, so the stop loss is wider than it would be on a Bullish Engulfing entry at the second candle's close.
A wider stop loss means a smaller position at the same account risk. On a $10,000 account risking 1% ($100), an 81-pip stop allows about 0.12 lots on EUR/USD, while a 59-pip stop allows about 0.17 lots.
Pro Tip: Measure the pips from entry to the stop loss before you enter, then size the position from that distance. |
You can practise marking the three outside up, placing the stop loss and sizing positions on TMGM's MT4 and MT5 charts with a free demo account before trading live. CFD trading involves significant risk and is not suitable for all investors. You could lose more than your initial deposit.
What Does a Three Outside Up Trade Look Like on EUR/USD?
The two examples below use illustrative prices on a EUR/USD 4-hour chart. The three candles are identical in both, and the only difference is how much room price has before the next resistance level.
Candle | Open | High | Low | Close |
|---|
First candle (bearish) | 1.0845 | 1.0850 | 1.0812 | 1.0820 |
Second candle (bullish) | 1.0820 | 1.0866 | 1.0808 | 1.0862 |
Third candle (bullish) | 1.0862 | 1.0890 | 1.0858 | 1.0884 |
The second candle opens at the first candle's close of 1.0820 and closes at 1.0862, above the first candle's open of 1.0845, so its body engulfs the first candle's body. The third candle closes at 1.0884, higher than the second candle.
Example 1: the trade reaches its target. The downtrend started from 1.1120, and the nearest resistance level sits at 1.1060. Entry is at the third candle's close of 1.0884, with the stop loss at 1.0803, 5 pips below the second candle's low, for a stop distance of 81 pips.
The 1:2 target is 162 pips above entry at 1.1046, below the resistance level. Price reaches it over the following sessions, for a gain of $200 on $100 of risk.
Example 2: the trade fails at resistance. The same three candles form, but a resistance level sits at 1.0910, only 26 pips above entry. Price stalls at 1.0910, turns lower and hits the stop loss at 1.0803 for a loss of $100.
The pattern was valid in both examples. What changed the result was the room between entry and the resistance level, which the check in the confirmation step would have flagged before entry.
How Reliable Is the Three Outside Up Candlestick Pattern?
The three outside up has clear rules and appears often on most timeframes, but it can fail even when every candle is valid. Treat it as one piece of evidence and confirm it before trading.
Advantages | Limitations |
|---|
Clear rules for all three candles that are easy to check on any chart | Can fail even when all three candles are valid |
Built-in confirmation from the third candle | Later entry and a wider stop loss than a Bullish Engulfing |
Fixed stop loss level below the second candle's low | Only complete once the third candle closes, so it is hard to spot in real time |
Works on any timeframe, from 1-hour to daily charts | Unreliable in sideways ranges with no prior downtrend |
Works alongside support levels, trendlines and indicators | Needs outside confirmation before entry |
When Does the Three Outside Up Pattern Fail?
Most failures come from where the pattern forms. A three outside up just under a resistance level, or under the lower edge of a recent price gap, has little room before bears step back in.
The second candle matters too. If it is barely longer than the first candle, the takeover by bulls is weak and the reversal often stalls.
The third case is a pattern with no downtrend before it. Inside a sideways range, the same three candles usually mark a swing toward the top of the range, and price tends to turn back at the range high.
When these checks pass, the pattern gives you a fixed stop loss and a measurable target. Position sizing and the stop loss still decide how a series of these trades turns out.
Frequently Asked Questions
What Is an Outside Candle Pattern?
An outside candle, also called an outside bar, is a candle whose high is above the previous candle's high and whose low is below the previous candle's low. The three outside up checks bodies instead of the full range, so its second candle can engulf the first candle's body without being an outside bar, and the pattern is still valid.
Does the Three Outside Up Work in Forex?
Yes. The rules are the same on currency pairs such as EUR/USD and on gold. The one difference is that forex candles usually open at the previous close, so the second candle opens level with the first candle's close and completes the engulf by closing above the first candle's open.
What Timeframe Works Best for the Three Outside Up?
The pattern appears on every timeframe, from 1-minute to monthly charts. Traders mostly use it on 4-hour and daily charts, because each candle covers more trading and short price spikes have less effect on the candle body.
Check More Bullish Candlestick Patterns
Bullish Pattern | Features |
|---|
Hammer Pattern | The hammer is a single-candle bullish reversal pattern that forms after a downtrend. 1. The candle has a small body at the top of its range. 2. The lower shadow is at least twice the length of the body. 3. The candle has little or no upper shadow. |
Inverted Hammer Pattern | The inverted hammer is a single-candle bullish reversal pattern that forms after a downtrend. 1. The candle has a small body at the bottom of its range. 2. The upper shadow is at least twice the length of the body. 3. The candle has little or no lower shadow. |
Dragonfly Doji Pattern | The dragonfly doji is a single-candle bullish reversal pattern that forms at the bottom of a downtrend. 1. The open and close are at or near the high of the candle. 2. The candle has a long lower shadow. 3. The candle has little or no upper shadow. |
Bullish Engulfing Pattern | The bullish engulfing is a two-candle bullish reversal pattern that forms after a downtrend. 1. The first candle is a small bearish candle. 2. The second candle is a larger bullish candle with a body that completely engulfs the body of the first candle. |
Bullish Harami Pattern | The bullish harami is a two-candle bullish reversal pattern that forms after a downtrend. 1. The first candle is a large bearish candle. 2. The second candle is a small candle, usually bullish, with a body that sits completely inside the body of the first candle. |
Piercing Line Pattern | The piercing line is a two-candle bullish reversal pattern that forms after a downtrend. 1. The first candle is a long bearish candle. 2. The second candle is a bullish candle that opens below the close of the first candle. 3. The second candle closes above the midpoint (50%) of the first candle body. |
Bullish Kicker Pattern | The bullish kicker is a two-candle bullish reversal pattern that shows a sudden change from selling to buying. 1. The first candle is a bearish candle. 2. The second candle is a bullish candle that gaps up and opens at or above the open of the first candle. 3. The bodies of the two candles do not overlap. |
Tweezer Bottom Pattern | The tweezer bottom is a two-candle bullish reversal pattern that forms at the end of a downtrend. 1. The first candle is a bearish candle. 2. The second candle is a bullish candle. 3. Both candles have the same, or nearly the same, low. |
Bullish Abandoned Baby Pattern | The bullish abandoned baby is a three-candle bullish reversal pattern that forms after a downtrend. 1. The first candle is a long bearish candle. 2. The second candle is a doji that gaps down below the first candle. 3. The third candle is a long bullish candle that gaps up above the doji. |
Three White Soldiers Pattern | Three white soldiers is a three-candle bullish reversal pattern that forms after a downtrend. 1. Three long bullish candles with small shadows form in a row. 2. Each candle opens inside the body of the previous candle. 3. Each candle closes higher than the previous candle. |
Three Inside Up Pattern | The three inside up is a three-candle bullish reversal pattern that forms after a downtrend. 1. The first candle is a large bearish candle. 2. The second candle is a small bullish candle that stays inside the first candle body and closes above the midpoint (50%) of the first candle body. 3. The third candle is a bullish candle that closes above the open of the first candle. |
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Check More Bearish Candlestick Patterns
Bearish Pattern | Features |
|---|
Hanging Man Pattern | The hanging man is a single-candle bearish reversal pattern that forms at the top of an uptrend. 1. The candle has a small body at the top of its range. 2. The lower shadow is at least twice the length of the body. 3. The candle has little or no upper shadow. |
Shooting Star Pattern | The shooting star is a single-candle bearish reversal pattern that forms after an uptrend. 1. The candle has a small body at the bottom of its range. 2. The upper shadow is at least twice the length of the body. 3. The candle has little or no lower shadow. |
Bearish Engulfing Pattern | The bearish engulfing is a two-candle bearish reversal pattern that forms after an uptrend. 1. The first candle is a small bullish candle. 2. The second candle is a larger bearish candle with a body that completely engulfs the body of the first candle. |
Bearish Harami Pattern | The bearish harami is a two-candle bearish reversal pattern that forms after an uptrend. 1. The first candle is a large bullish candle. 2. The second candle is a small candle, usually bearish, with a body that sits completely inside the body of the first candle. |
Dark Cloud Cover Pattern | Dark cloud cover is a two-candle bearish reversal pattern that forms after an uptrend. 1. The first candle is a long bullish candle. 2. The second candle is a bearish candle that opens above the close of the first candle. 3. The second candle closes below the midpoint (50%) of the first candle body. |
Tweezer Top Pattern | The tweezer top is a two-candle bearish reversal pattern that forms at the end of an uptrend. 1. The first candle is a bullish candle. 2. The second candle is a bearish candle. 3. Both candles have the same, or nearly the same, high. |
Evening Star Pattern | The evening star is a three-candle bearish reversal pattern that forms after an uptrend. 1. The first candle is a long bullish candle. 2. The second candle is a small-bodied candle that can be bullish or bearish. 3. The third candle is a long bearish candle that closes below the midpoint (50%) of the first candle body. |
Three Black Crows Pattern | Three black crows is a three-candle bearish reversal pattern that forms after an uptrend. 1. Three long bearish candles with small shadows form in a row. 2. Each candle opens inside the body of the previous candle. 3. Each candle closes lower than the previous candle. |
Check More Neutral Candlestick Patterns
Neutral Pattern | Features |
|---|
Doji Pattern | The doji is a single candle that opens and closes at or near the same price, which shows indecision between buyers and sellers. 1. The body is very small or appears as a thin line. 2. The upper and lower shadows can be any length. 3. A doji after a strong trend can warn of a reversal, and traders wait for the next candle to confirm the reversal. |
Pin Bar Pattern | The pin bar is a single-candle reversal pattern that can be bullish or bearish. 1. The candle has a small body at one end of its range. 2. One long shadow, called the tail, makes up most of the candle range. 3. A bullish pin bar has a long lower shadow, and a bearish pin bar has a long upper shadow. |
Marubozu Pattern | The marubozu is a single candle with a long body that shows strong buying or strong selling. 1. The candle has a long body. 2. The candle has no upper or lower shadow, or only very small shadows. 3. A bullish marubozu opens at the low and closes at the high, and a bearish marubozu opens at the high and closes at the low. |
Harami Pattern | The harami is a two-candle reversal pattern that can be bullish or bearish. 1. The first candle is a large candle. 2. The second candle is a small candle with a body that sits completely inside the body of the first candle. 3. A bullish harami forms after a downtrend, and a bearish harami forms after an uptrend. |
Engulfing Pattern | The engulfing is a two-candle reversal pattern that can be bullish or bearish. 1. The first candle is a small candle. 2. The second candle is a larger candle of the opposite colour, with a body that completely engulfs the body of the first candle. 3. A bullish engulfing forms after a downtrend, and a bearish engulfing forms after an uptrend. |
Inside Bar Pattern | The inside bar is a two-candle pattern that can signal a continuation or a reversal. 1. The first candle is a large candle, often called the mother bar. 2. The second candle has a high and low that stay inside the high and low of the first candle. 3. Traders trade the breakout above the high or below the low of the first candle. |
Morning Star and Evening Star Pattern | The morning star and evening star are three-candle reversal patterns, one bullish and one bearish. 1. The first candle is a long candle in the direction of the existing trend. 2. The second candle is a small-bodied candle that can be bullish or bearish. 3. The third candle is a long candle in the opposite direction that closes past the midpoint (50%) of the first candle body. 4. A morning star forms after a downtrend, and an evening star forms after an uptrend. |
Check More Trading Pattern Guides
Guide | What It Covers |
|---|
Reversal Candlestick Patterns | This guide explains how candlestick patterns warn that an uptrend or a downtrend may reverse. 1. Bullish reversal patterns form after a downtrend. 2. Bearish reversal patterns form after an uptrend. 3. Traders wait for a confirmation candle before entering a position. |
Chart Patterns in Trading | This guide explains how chart patterns form from price swings over many candles. 1. Reversal chart patterns warn that the existing trend may end. 2. Continuation chart patterns show a pause before the existing trend continues. 3. Traders enter a position when a candle closes beyond the trendline that marks the edge of the chart pattern. |
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