The ‘Three Inside Up’ pattern consists of an initial big black candlestick followed by two white candles. The second candle is typically small and must be white and inside the body of the first, forming a low credibility ‘Bullish Harami’ while the third candlestick is white and close above the high of the second candlestick. Being white with a higher close the third candlestick effectively gives us a confirmation of the ‘Bullish Harami’ pattern making the whole ‘Three Inside Up’ setup a high credibility candlestick pattern.
Technical Description
1) Preceded by a bearish market the first candle of the pattern should have a long black body.
2) The second candlestick is white opening and closing inside the body of the first.
3) Ideally the wick and tail of the second candle should also be contained inside the body though this is not necessary.
4) The third white candlestick should have a higher close than the second candle; ideally this will have a big white body though this is not a necessity.
5) The third candlestick should not be a doji or spinning top.
Mark’s Perspective
‘Three Inside Up’ patterns come in a variety of shapes, the most common with the second candlestick near its bottom is sometimes misidentified as a morning star. Where the third candlestick closes, inside the body of the first or beyond it could also affect the overall picture.
If the first candlestick is an extremely long black it may be possible to use a scaled entry the immediate objective will be the patterns high where another buy trade may be added at its break. Stop losses should be placed below the pattern’s low.
Should the third candlestick close above the highs of the first check whether the pattern is overextended. If this will be the case look for prices to pullback well inside the body of the third candlestick before taking action. Stops should be placed just below the patterns low.