A bullish inside three candlestick pattern is a reversal pattern that confirms the trend reversal of a bear market and in which the first two candlesticks form a bullish harami.
Unlike the three outer bullish candles, in this case we are looking at a pattern in which the first two candles form a bullish harami. This is similar to the bullish engulfing, but it is the bearish (color) candle that engulfs the bullish (white), in the engulfing it was the other way around.
It is worth remembering that these patterns must be seen as a whole and without discarding the information offered by fundamental analysis. In addition, it can help us to use indicators such as the moving average.
Operation of the three bullish inside candles
As we have mentioned before, we start from a bearish market that reaches a pattern, the bullish harami. This is a predictor of a change in trend, what the third candle does, as it happened in the three outer bullish candles, is to confirm and reinforce.
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Investors who would have held long positions could now consider selling and taking their profit. This selling pressure must be taken into account, since it will lower the price as supply increases. Therefore, you must act quickly.
Characteristics of the three bullish inside candlesticks
Let’s see, next, some relevant characteristics of the three bullish inside candles.
- First of all, the market must be on a bearish path. In this way, the change in trend would be bullish.
- In the bullish harami, the colored candle completely engulfs the trailing white candle, including its tails.
- If the third candle (right in the figure) closes above the maximum price of the previous one (the first white one), then the strength of the prediction is greater.
- The closing price of the third candle must be higher than that of the second.
- This pattern is a confirmation of the harami that makes up the first two candles.
Level confirmation and stop loss
A confirmation level refers to the last closing price. In this case, it would be that of the second candle and it is below that of the third. This would be indicating that change in trend that the third candle is going to reinforce.
For its part, the stop loss is an order conditional on a minimum price. In this case, in the bullish inside three candlestick pattern, there is no rule that can be applied and it will have to be taken into account when setting the minimum limit of the trade.