A three-candle reversal that adds one confirming bar to an engulfing pattern. The second candle engulfs the first; the third extends in the same direction to confirm the turn. Read it as the confirmed version of the engulfing.
Three Outside Up / Down is a three-candle reversal that adds a single confirming bar to an engulfing pattern.
At its core it is nothing more than the familiar Engulfing Pattern. Candles one and two complete the engulfing; the third candle extends in the same direction and confirms the reversal. "Outside" refers to the second body breaking outside the first body and swallowing it whole.
At a bottom it is Three Outside Up (buy reversal); at a top it is Three Outside Down (sell reversal). This pattern is the market's answer to the engulfing's habit of firing too early. When the second candle declares that the story has been rewritten, the third candle checks whether it was real.
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