Three Outside Down
Reference values based on Bulkowski's "Encyclopedia of Chart Patterns". Data is primarily from U.S. markets and may differ for other markets.
A confirmation pattern for the bearish engulfing. After a large bearish candle completely engulfs a small bullish candle, the third bearish candle closes at an even lower level to confirm the reversal. More reliable than a standalone engulfing pattern, it serves as a powerful sell signal at tops.
Enter short at the next candle's open after the third bearish candle closes below the second candle's low. Confirm the third candle clearly closes below the second.
Project the second engulfing candle's range downward from the third candle's close. Or target the nearest support line.
Place a stop-loss slightly above the second engulfing candle's high. Or above the entire pattern's high.
Ideally, volume increases significantly on the second engulfing candle and remains high on the third. Volume increase indicates genuine seller participation.