Source: Tiger Trade app
The three outside down is a technical pattern commonly seen on price charts, indicating a potential downtrend in the market.
The three outside down pattern consists of three consecutive candlesticks, where the second bearish candle completely engulfs or "swallows" the body of the first bullish candle, and the third larger bearish candle breaks below the lows of the previous two candles.
The specific characteristics of this technical pattern are as follows:
First candlestick: The first candlestick is a bullish candle (the body is between the open and close prices) and indicates an uptrend.
Second candlestick: The second candlestick is a bearish candle (the body is between the open and close prices) that completely engulfs or "swallows" the body of the first bullish candle, suggesting that bullish momentum is being suppressed by bearish forces.
Third candlestick: The third candlestick is a larger bearish candle that breaks below the lows of the previous two candles, indicating that the bullish forces have been completely defeated and prices may continue to decline.
The three outside down pattern signals a shift in market sentiment, with weakening bullish forces and strengthening bearish forces, implying a potential downtrend. However, for increased accuracy in trading decisions, it is essential to combine this pattern with other technical indicators and trend confirmations, as well as implement appropriate risk management strategies.
Here's an example:
Apple Inc. (AAPL) - A clear three outside down pattern appeared in September 2020. After confirmation of the three outside down patterns, the stock price of Apple started to weaken in the following period.
Source：Tiger trade app
Regarding the three outside down technical patterns, you should also pay attention to the following aspects:
Confirm the pattern: Ensure that the second bearish candle completely engulfs or "swallows" the body of the first bullish candle and that the third larger bearish candle breaks below the lows of the previous two candles.
Downtrend: The three outside down patterns typically occur after an uptrend, indicating a potential signal for price reversal.
Trading volume: Observe the trading volume when the three outside down patterns appear; higher trading volume can provide stronger confirmation signals.
Trend confirmation: Combine other technical indicators and trend confirmation tools, such as moving averages, Relative Strength Index (RSI), etc., to confirm the validity of the three outside down pattern.
Breakout confirmation: Observe whether the price can break below the lows of the three outside down patterns; this may be a signal for further downward movement.
Target price: Based on the height of the three outside down patterns and the location of the breakout point, you can estimate the target level for future prices.
Please note that technical patterns are just one tool for analyzing stock trends and should not be used as the sole basis for investment decisions. A comprehensive assessment, considering technical, fundamental, and market factors, is necessary for more accurate investment judgments!