Three Outside Down Candlestick Pattern: Bearish Reversal Signal
When a rally begins to lose steam, traders often look for clues that momentum might be shifting. The three outside down candlestick pattern is one of the clearest of those clues. It doesn’t rely on dramatic moves—it shows a controlled, steady reversal from bullish to bearish sentiment.
This pattern is reliable, easy to spot, and works especially well after a strong upward move.
What the Pattern Looks Like
Three candles signaling a shift
The three outside down candlestick pattern appears at the end of an uptrend and is made up of:
1. A small green candle that continues the uptrend
2. A large red candle that completely engulfs the green candle
3. Another red candle that closes lower than the second one
It starts off subtle but ends with a clear message—buyers are backing off, and sellers are stepping in with strength.
What It Suggests
A possible change in direction
This pattern builds on the bearish engulfing setup by adding a third candle that confirms the downward momentum. The red engulfing candle wipes out the previous green one, and then the third candle drives price even lower.
It’s not just a warning—it’s an actionable shift.
When It’s More Reliable
Watch the context around the pattern
The three outside down candlestick pattern becomes especially powerful in specific conditions. It’s not just about the candles—it’s about where they form.
Here’s how traders interpret its meaning:
It’s not ideal during sideways markets or low-volume environments.
How Traders Use It
Confirmation helps reduce risk
Traders treat this pattern as a bearish reversal signal, especially when the third candle confirms the selling pressure. Many wait for that final close before considering an entry.
Here’s how it’s typically used:
Some traders go short below the third candle’s low, using the first candle’s high as a stop-loss area.
Chart Example
Let’s say the Dow Jones is climbing. A small green candle forms, followed by a strong red candle that fully covers it. On the third day, another red candle closes even lower.
That’s a textbook three outside down candlestick pattern.
If this happens near a resistance level with volume rising, many traders would take it as a sign to exit long trades—or even enter a short position.
Why It Works
Steady, confirmed reversal
The three outside down candlestick pattern gives traders something they love—confirmation. It’s not based on one candle or guesswork. It shows consistent bearish pressure and a real shift in momentum.
That wraps up the core triple-candle reversal formations. From here, you can start practicing them on charts or integrating them into your strategy with confidence.
