Overview
Bearish Three Inside Down
Also known as: Confirmed Bearish Harami, Three Inside Down Turn, Harami Confirmation
The three inside down is a confirmed bearish harami pattern. A long bullish candle is followed by a smaller bearish candle inside its body, then a third bearish candle closes below the first candle's low, providing definitive reversal confirmation.
The three inside down is essentially a bearish harami with built-in confirmation. The first two candles form a classic bearish harami (a large bullish candle followed by a smaller bearish candle within its body). The third candle provides the confirmation that many traders require before acting on a harami signal—it closes below the first candle's low, proving that sellers have overwhelmed the prior bullish momentum. This three-candle structure makes the signal significantly more reliable than a standalone harami because the confirmation removes much of the ambiguity. The pattern is widely traded on daily charts and is considered one of the bread-and-butter bearish reversal setups.
History & Etymology
The three inside down is a modern extension of the Japanese bearish harami pattern. While the harami itself dates back centuries, the three-candle confirmed version was formalized by Western technical analysts who recognized that adding a confirmation candle significantly improved the pattern's reliability.
'Three' indicates the three-candle formation. 'Inside' refers to the second candle being contained inside the first (the harami relationship). 'Down' indicates the bearish resolution with the third candle closing lower.
How It Forms
Formation Steps
- 1First candle is a long bullish candle in an uptrend
- 2Second candle is a smaller bearish candle whose body is contained within the first candle's body (bearish harami)
- 3Third candle is a bearish candle that closes below the first candle's low, confirming the reversal
Prerequisites
- Established uptrend or rally
- The first candle should have a long real body
Confirmation Signals
- Third candle closes below the first candle's low
- Volume increases on the third candle
- RSI turning down from overbought
Invalidation Signals
- Third candle closes above the first candle's close
- Bullish follow-through after the pattern
- Low volume on the third candle
Candle Breakdown
Mother Candle
A long bullish candle representing the existing uptrend. Its body defines the range for the inside (harami) candle.
The final strong push higher before the reversal. Buyers are confident but about to face a shift.
Inside Candle (Harami)
A smaller bearish candle whose body is entirely contained within the first candle's body, showing momentum loss.
The small body within the prior large body shows that momentum has stalled. Buyers can no longer push price to new highs.
Confirmation Candle
A bearish candle that closes below the first candle's low, confirming that the reversal is genuine.
The decisive break below the mother candle's low confirms that sellers have taken control. Bulls who bought during the first candle are now in losing positions.
Psychology
The three inside down captures the full lifecycle of a reversal: strong bullish move, indecision/momentum loss, and bearish confirmation. The three-step process provides high confidence that the reversal is genuine.
Buyer Perspective
Buyers are confident after the first candle but confused by the second candle's small body. The third candle closing below the first candle's low forces them to exit.
Seller Perspective
Sellers recognize the harami (second candle) as a loss of momentum and prepare to enter. The third candle's breakdown gives them the confirmation to enter aggressively.
Smart Money Action
Smart money begins selling during the harami candle (second) and adds aggressively on the breakdown (third candle).
Retail Trader Trap
Retail traders hold their long positions through the harami, expecting continuation, and are forced out by the third candle's breakdown.
Emotional Cycle
Trading Strategy
Aggressive Entry
Enter short at the close of the second candle (the harami), anticipating the confirmation.
Conservative Entry
Enter short when the third candle closes below the first candle's low.
Equal to the first candle's range projected below its low
Next major support level
2x the first candle's range
Best Conditions
- Timeframe: 1D
- Timeframe: 4h
- Timeframe: 1h
- After rallies to resistance
- Overbought conditions
- Asset: Stocks
- Asset: Forex
- Asset: Indices
- Asset: Crypto
Avoid When
- Timeframe: 1m
- Timeframe: 5m
- Strong momentum uptrends
Confluence Factors
- Pattern at resistance
- RSI overbought
- Bearish divergence
- Moving average nearby
- Volume confirmation
Scale In Strategy
Enter on the third candle close, add on pullback to the first candle's midpoint.
Scale Out Strategy
Take 50% at the first target, trail the rest.
Risk Management
Volume Analysis
Volume Confirmation
Volume should decrease on the second candle and increase on the third, confirming the reversal sequence.
Volume Profile
Low volume on the harami candle followed by high volume on the breakdown is ideal.
Volume Divergence
High volume on the harami candle without breakdown may signal absorption rather than reversal.
Technical Confluence
Support Resistance
The first candle's high becomes the key resistance. Its low (broken by the third candle) becomes the initial target and then resistance on retests.
Fibonacci Levels
The pattern often forms at 61.8% or 78.6% Fibonacci retracement levels of prior declines.
Moving Averages
The confirmation candle often closes below the 20 EMA, adding momentum confirmation.
Rsi Confirmation
RSI turning down from above 60-70 during the pattern confirms the reversal.
Macd Confirmation
MACD bearish crossover during the pattern adds confirmation.
Bollinger Bands
The first candle near the upper band with the third near the middle band confirms the reversal.
Vwap
Third candle closing below VWAP confirms intraday bearish sentiment.
Ichimoku Cloud
Pattern forming above the Kumo with the third candle approaching it signals potential bearish transition.
Elliott Wave
Often marks the end of corrective Wave 2 or Wave B.
Wyckoff Phase
Can appear during the distribution phase as an early sign of weakness.
Market Profile
The pattern shows price failing to auction higher and rotating back down.
Order Flow
Positive delta on candle 1, neutral on candle 2, strongly negative on candle 3.
Open Interest
Monitor open interest for confirmation of institutional participation.
Multi-Timeframe Analysis
Higher Timeframe Alignment
Daily three inside down at weekly resistance is a high-conviction setup.
Lower Timeframe Entry
Use the 4H chart to time the entry within the daily confirmation candle.
Timeframe Confluence
4H three inside down at daily resistance with weekly bearish divergence.
Top-Down Approach
Weekly resistance > Daily three inside down > 4H entry.
Statistics
Historical Examples
Google Three Inside Down
successGoogle formed a three inside down at $125 after a rally. The confirmation candle broke below the mother candle's low, and the stock dropped 8% over two weeks.
Lesson: The three inside down in large-cap tech stocks at resistance provides reliable reversal signals.
Variations
Three Inside Down with Harami Cross
The second candle is a doji inside the first candle, adding extra indecision.
Confusion Matrix
Patterns commonly confused with Bearish Three Inside Down and how to distinguish them.
Bearish Three Outside Down
7500% similarIn three inside down, the second candle is INSIDE the first. In three outside down, the second candle is OUTSIDE (engulfs) the first.
Key Differences
- Three inside down starts with a bullish candle with harami inside
- Three outside down starts with a small candle engulfed by a larger bearish candle
- The candle size relationship is opposite
The Bearish Engulfing is one of the most powerful and commonly traded two-candle reversal patterns. A large bearish candle completely engulfs the prior bullish candle, demonstrating a decisive shift from buying to selling dominance.
The bearish harami cross is a two-candle reversal pattern where a large bullish candle is followed by a doji contained within the first candle's body. The doji represents complete indecision, making this a slightly stronger reversal signal than the standard harami.
The bearish harami is a two-candle reversal pattern where a large bullish candle is followed by a small bearish candle entirely contained within the first candle's body. It signals waning buying momentum and potential trend reversal.
Three black crows is a powerful bearish reversal pattern consisting of three consecutive long bearish candles, each opening within the prior candle's body and closing near its low. It signals strong, persistent selling pressure and a likely trend reversal.
The three outside down is a confirmed bearish engulfing pattern. A small bullish candle is engulfed by a larger bearish candle, then a third bearish candle closes below the second candle's low, providing definitive confirmation of the reversal.
The Bullish Three Inside Up is a three-candle reversal pattern that combines a bullish harami with a confirming third candle that closes above the first candle's open, providing a more reliable reversal signal than the harami alone.
Pro Tips & Common Mistakes
Pro Tips
- The three inside down is more reliable than a standalone harami because the third candle removes ambiguity.
- The smaller the harami candle relative to the mother, the more significant the momentum shift.
- Volume increasing on the third candle while decreasing on the second is the ideal sequence.
- This pattern works on all timeframes but is most reliable on daily charts.
Common Mistakes
- Trading the harami alone without waiting for confirmation
- Accepting weak confirmation (third candle closing near but not below the first candle's low)
- Ignoring volume patterns
Advanced Techniques
- Use the harami candle's body as a 'zone of indecision'—if price reclaims this zone after the breakdown, the pattern may fail.
- Track the ratio of the harami body to the mother body—smaller haramis indicate more dramatic momentum shifts.
Institutional Perspective
The three inside down represents institutional selling that begins during the harami (reducing exposure) and accelerates on the third candle (active shorting). The confirmed pattern gives institutional traders the confidence to commit larger positions.
Fun Facts
- The three inside down essentially 'solves' the main criticism of the harami pattern—its need for confirmation—by building the confirmation into the pattern itself.
- Statistical studies show the three inside down has a 10-15% higher success rate than the standalone bearish harami.
Frequently Asked Questions
A three-candle bearish reversal: a long bullish candle, a smaller bearish candle inside it (harami), and a third bearish candle closing below the first candle's low. The third candle confirms the harami reversal.
In three inside down, the second candle is inside (smaller than) the first. In three outside down, the second candle engulfs (is larger than) the first. Both are confirmed reversal patterns.