Three Outside Up/Down Candlestick Pattern: What It Looks Like and What It Means
Three outside up/down is a three-candle pattern: an engulfing candle, one whose body wraps around the body of the candle just before it, followed by a third candle that keeps moving in the same direction. It joins the force of an engulfing pattern to a follow-through, so readers give it more weight than an engulfing candle alone. Even so, it is a hint to check, not a promise.
How It Forms
A candle's body spans the period's open to its close, and its wicks are the thin lines reaching the period's high and low. Bullish means a close above the open, bearish a close below. A reversal is a move that may be changing direction, upward after a fall or downward after a rise.
The engulfing candle is the key: its body stretches past both ends of the previous candle's body, and it is the opposite color, bullish over bearish or bearish over bullish. In three outside up, a small bearish candle appears during a fall, a larger bullish candle then covers it, and a third bullish candle follows through. Three outside down is the mirror: a small bullish candle during a rise, a larger bearish candle covering it, then a third bearish candle.
The drawing shows three outside up, and its prices are made up. Candles 2 to 4 are the pattern:
| Candle | Open | High | Low | Close |
|---|---|---|---|---|
| 1 | $33 | $36 | $28 | $30 |
| 2 (small) | $27 | $29 | $22 | $24 |
| 3 (engulfing) | $22 | $36 | $20 | $34 |
| 4 (follow-through) | $34 | $43 | $32 | $41 |
| 5 | $41 | $46 | $39 | $44 |
Candle 2's body runs from $27 down to $24, only $3 tall. Candle 3 opens at $22, below that body, and closes at $34, above it, so its $12-tall body covers candle 2's. Candle 4 then opens at $34 and finishes at $41, a further rise of $7.
How to Read It
- The engulf. The big middle candle shows one side overpowering the other within a single period.
- The direction. The third candle follows the engulf: up is bullish, down is bearish.
- The context. The pattern matters most where the engulfing candle ends a clear trend. In the middle of a flat range it says less.
What to Watch For
The pattern leans on the trend before it. An engulfing candle with no run-up, or a third candle that barely moves, gives a thin reading.
Compare it with its neighbors:
- An engulfing pattern stops after the engulfing candle; it lacks the follow-through candle.
- Three inside up/down starts with a harami, where the second body sits inside the first, rather than an engulfing candle. The difference is the shape of the first two candles.
Free or Premium
Three outside up/down is an extended pattern. Its chart marker is part of Rapunzl Premium and appears after you turn on the opt-in for 10 advanced patterns. Rapunzl's Stock Scanner lists it for free in its pattern filters.
Try It in Rapunzl
The chart type has to be Candlestick or OHLC. Then go to Customize Chart → Chart Indicators → Levels, Patterns & AI Charts and switch on Pattern Markers; the opt-in for the 10 advanced patterns needs to be on too. Detected patterns appear as ▲ (bullish) or ▼ (bearish).
In the Stock Scanner, open the Bullish candlestick or Bearish candlestick filter and choose Three Outside Up/Down from its patterns. For the bullish version, the ready-made idea "Bullish candlestick today" is a starting list of company stocks that formed a bullish pattern on the latest day of trading. Read its note first: patterns are hints, not promises, and many do not lead to a rise.
A 15-Minute Class Activity
Match the Three Days. Pairs get four cards of three made-up days each, plus four label strips: Three Outside Up, Three Outside Down, Three Inside Up and Engulfing Only.
- 3 minutes. The teacher draws candles 2 and 3 from the table and the class names what makes the second one engulfing.
- 6 minutes. Pairs sketch each card's bodies and match it to a label. Open/close for Day 1, 2 and 3, all made up: Card A $40/$36, $34/$42, $42/$48. Card B $20/$24, $26/$18, $18/$13. Card C $50/$38, $42/$46, $46/$54. Card D $30/$27, $26/$33, $33/$31.
- 3 minutes. Check together: A is three outside up and B is three outside down. C is three inside up, because Day 2 sits inside Day 1. D is an engulfing pattern only, since Day 3 falls back instead of following through.
- 3 minutes. Exit ticket: in one sentence, say how three outside differs from three inside.
Related Patterns
- Engulfing: the engulfing candle by itself, without the follow-through.
- Three Inside Up/Down: the same three-candle idea built on a harami.
- How to Read a Candlestick Chart: body size and colour explained from scratch.
- Support and Resistance Levels: why the location of a reversal pattern matters.
Frequently Asked
Questions
It is an engulfing candle after a fall, followed by a third candle that keeps rising. The engulfing candle's body covers the one before it, and the third candle is read as confirming it.
They are mirror images. Up follows a fall and is read as bullish; down follows a rise and is read as bearish.
No. It is read as a stronger hint than an engulfing candle alone, but it is still a hint, and a weak third candle makes it thinner.
Bring Candlestick Patterns Into Your Lessons With Rapunzl
Teachers who want Rapunzl's charts and simulator beside their own materials can request a demo. Families can start on the parents page.
Indicators, patterns and examples in this article are for education and are not investment advice or a recommendation to buy or sell any security.
By Maria Rodriguez, Curriculum Designer at Rapunzl.