Technical Glossary / Candlestick Patterns
Three Outside Down
A bearish engulfing confirmed by a third candle that closes lower.
Teaching sketch. It shows the shape, not a live quote and not a trade signal.
Definition
Three outside down begins with a bearish engulfing and adds a third candle that closes under the engulfing close. It is the bearish mirror of three outside up.
How to identify it
Bar two's body engulfs bar one and is bearish. Bar three closes lower than bar two.
Bullish reading
A later close above the pattern high invalidates it. Do not average a short that has already reclaimed that high.
Bearish reading
The third close supports the engulfing rather than fading it. Risk is above the high of the outside bar.
Common mistakes
Labeling any three down candles as the pattern. Without the engulfing, it may be three black crows or simply a decline.
Limitations
Confirmation comes late in a fast drop. The pattern is clearest when the engulfing is at a high, not after a long breakdown.
This note explains the term. A sketch shows the shape of the idea. Neither is a recommendation, a signal, or a comment on any security. Indicator settings and exchange conventions differ. Check the live chart and the contract specification before you use a number.