Subscribe to RSS feeds Bulkowski Blog via RSS

Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

Support this site! Clicking the links (below) takes you to Amazon.com. If you buy ANYTHING, they pay for the referral.

Picture of the Tears for Bumper.
Kindle
Nook
Picture of the head's law.
Kindle
Paperback
Nook
Chart Patterns: After the Buy
Getting Started in Chart Patterns, Second Edition book.
Trading Basics: Evolution of a Trader book.
Fundamental Analysis and Position Trading: Evolution of a Trader book.
Swing and Day Trading: Evolution of a Trader book.
Visual Guide to Chart Patterns book.
Encyclopedia of Chart Patterns 2nd Edition book.

Bulkowski's Three Inside Down

Class Elliott Wave Fundamentals Psychology Quiz Research Setups Software Tutorials More...
Busted
Patterns
Candles Chart
Patterns
Event
Patterns
Small Patterns
Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 05/23/2017
20,938 43.08 0.2%
9,010 45.02 0.5%
711 1.33 0.2%
6,139 5.09 0.1%
2,398 4.40 0.2%
YTD
5.9%
-0.4%
7.7%
14.0%
7.1%
Tom's Targets    Overview: 05/15/2017
21,400 or 20,450 by 06/01/2017
9,500 or 8,700 by 06/01/2017
685 or 720 by 06/01/2017
6,350 or 6,000 by 06/01/2017
2,330 or 2,450 by 06/01/2017

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.

Three Inside Down Candlestick: Summary

The three inside down candlestick acts as a reversal, but not as frequently as I would like. A check of the numbers shows that reversals occur most often within a third of the yearly low, regardless of market conditions (bull or bear).

The frequency rank is 33rd out of 103 candlestick patterns, so this is an easy one to spot in a crowd. The overall performance after 10 days is just mid range. You will want to avoid trading this candle after a downward breakout in a bull market. That combination gives the worst performance after 10 days. If you ignore the 10 day restriction, then avoid the three inside down pattern in a bull market. This candle does best in a bear market.

$ $ $

My book, Encyclopedia of Candlestick ChartsEncyclopedia of Candlestick Charts book., pictured on the left, takes an in-depth look at candlesticks, including performance statistics.

If you click on this link and then buy the book (or anything) at Amazon.com, the referral will help support this site. Thanks. -- Tom Bulkowski

 

$ $ $

Three Inside Down Candlestick: Important Results

Theoretical performance: Bearish reversal
Tested performance: Bearish reversal 60% of the time
Frequency rank: 33
Overall performance rank: 56
Best percentage meeting price target: 58% (bull market, up breakout)
Best average move in 10 days: 4.93% (bear market, up breakout)
Best 10-day performance rank: 30 (bear market, down breakout)

All ranks are out of 103 candlestick patterns with the top performer ranking 1. "Best" means the highest rated of the four combinations of bull/bear market, up/down breakouts.

The above numbers are based on hundreds of perfect trades. See the glossary for definitions.

The ideal three inside down candlestick
Three Inside Down
Top of page   More

Three Inside Down Candlestick: Discussion

The three inside down candlestick is supposed to act as a bearish reversal in theory and testing shows that it does but only 60% of the time. If 50% represents random behavior then a 60% reversal rate does not inspire confidence. The overall performance rank is 56 and that is just mid list, too. It suggests that the post breakout trend is not awe-inspiring.

The best percentage move 10 days after the breakout is a rise of 4.93% after an upward breakout. That ranks 30th. I consider moves of 6% or higher as good ones, so this is well behind the pack.

Three Inside Down Candlestick: Identification Guidelines

CharacteristicDiscussion
Number of candle linesThree.
Price trend leading to the patternUpward.
ConfigurationLook for a tall white candle in an upward price trend. Following that, a small black candle appears with the open and close within the body of the first day. The tops or bottoms of the two bodies can be the same price, but not both. The last day must close lower, but can be any color.
Top of page   More

Three Inside Down Candlestick: Three Trading Tidbits

If you want a few bones from my Encyclopedia of candlestick charts book, here are three to chew on. The pages refer to the book where the tips appear.

  1. Three inside down candles that appear within a third of the yearly low perform best -- page 741.
  2. Select tall candles for the best performance -- page 742.
  3. Look for the three inside down candlestick as an upward retracement in a downward price trend for the best performance -- page 743.

Three Inside Down Candlestick: Example

The three inside down candlestick on the daily scale

The three inside down candlestick is a bearish harami with a confirming candle as the third day, according to Morris who created this candle pattern. The chart shows an example of the three inside down circled in red. An upward price trend leads to a tall white candle. Following that, a smaller black candle appears that fits inside the body of the white candle. The last day has a lower close, but the candle can be any color. The lower close confirms the reversal (downward move).

This example of the three inside down pattern functions as a bullish reversal. Why? Because price trends upward into the candle and breaks out downward. A downward breakout happens when price closes below the bottom of the candlestick pattern.

The best way to trade the three inside down is to find it in an upward retrace of the downward price trend. By that I mean the longer term trend should be moving lower and then price retraces a portion of the down move. At the top of the upward retrace, the three inside down appears and it signals the end of the uptrend. When the downward breakout occurs, price rejoins the downward trend already established.

-- Thomas Bulkowski

Top of page   More  

See Also

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. Breakfast.exe halted: Cereal port not responding.