Overview
Bullish Three Outside Up
Tsutsumi Age
Also known as: Confirmed Engulfing, Engulfing with Confirmation
The Bullish Three Outside Up is a three-candle reversal pattern combining a bullish engulfing with a confirming third candle that closes higher, providing one of the strongest reversal signals in candlestick analysis.
The Three Outside Up enhances the already-powerful bullish engulfing by adding a third candle that confirms the reversal. The first two candles form the engulfing pattern, and the third candle closes above the second candle's close, sealing the momentum shift. This three-candle combination is considered one of the most reliable reversal signals because the engulfing shows an immediate control shift and the confirmation candle proves the shift is sustained.
History & Etymology
The pattern evolved from the bullish engulfing in Japanese candlestick analysis. The addition of the confirmation candle addresses the engulfing's occasional failure rate, creating a more dependable three-candle reversal signal.
Named 'three outside up' because the second candle is outside (engulfs) the first candle, and the three-candle pattern resolves upward (bullish).
How It Forms
Formation Steps
- 1First candle: a bearish candle in a downtrend
- 2Second candle: a bullish candle that completely engulfs the first candle's body
- 3Third candle: a bullish candle that closes above the second candle's close
Prerequisites
- Established downtrend
- Second candle fully engulfs the first candle's body
- Third candle closes higher than the second candle
Confirmation Signals
- Third candle closes at or near its high
- Volume increases on the second and third candles
- Follow-through buying continues
Invalidation Signals
- Third candle fails to close above the second candle's close
- Price reverses below the first candle's low
- Volume declines on the third candle
Candle Breakdown
Bearish Candle
A bearish candle continuing the downtrend
Bears maintain control but the candle may be smaller than recent ones, hinting at weakening momentum.
Engulfing Candle
A large bullish candle that completely engulfs the first candle's body
Buyers overwhelm sellers in a single session. The engulfment signals an immediate and dramatic shift in control.
Confirmation Candle
A bullish candle that closes above the engulfing candle's close
Continued buying confirms the reversal is genuine. Remaining shorts are forced to cover.
Psychology
The Three Outside Up represents a rapid and decisive shift from bearish to bullish control. The engulfing shows the initial power shift, and the confirmation candle proves it is not a one-day aberration.
Buyer Perspective
Buyers who drove the engulfing see immediate validation from the confirmation candle, encouraging additional position building.
Seller Perspective
Sellers are overwhelmed by the engulfing and demoralized by the confirmation. Two consecutive large bullish sessions signal a clear regime change.
Smart Money Action
Institutions initiate positions on the engulfing candle and add aggressively on the confirmation candle.
Retail Trader Trap
Retail traders who were short see two consecutive large bullish candles and panic cover, adding fuel to the rally.
Emotional Cycle
Trading Strategy
Aggressive Entry
Enter long at the close of the second (engulfing) candle.
Conservative Entry
Enter long at the close of the third candle when fully confirmed.
Previous swing high or 1:1 risk-reward.
Height of the engulfing candle projected above the third candle's close.
2:1 risk-reward or the next major resistance.
Best Conditions
- Timeframe: daily
- Timeframe: 4h
- Timeframe: weekly
- oversold conditions
- at key support levels
- after extended downtrends
- Asset: stocks
- Asset: forex
- Asset: ETFs
- Asset: crypto
Avoid When
- Timeframe: 1m
- Timeframe: 5m
- strong downtrend with high momentum
- panic selling
- near resistance in a bear market
Confluence Factors
- Pattern at key support
- RSI bullish divergence
- Volume expands on candles 2 and 3
- Near a major moving average
- Fibonacci level alignment
Scale In Strategy
Enter half on the engulfing and add on confirmation.
Scale Out Strategy
Take one-third at TP1, one-third at TP2, trail the rest.
Risk Management
Volume Analysis
Volume Confirmation
Volume should increase on the second and third candles compared to the first.
Volume Profile
Expanding volume on the engulfing and confirmation is ideal.
Volume Divergence
Declining volume on the third candle weakens the confirmation.
Technical Confluence
Support Resistance
Most effective at established support levels.
Fibonacci Levels
Alignment with 50% or 61.8% retracement increases reliability.
Moving Averages
Pattern at the 50 or 200-day MA is highly significant.
Rsi Confirmation
RSI bullish divergence dramatically increases win rate.
Macd Confirmation
MACD bullish crossover on the second or third candle adds conviction.
Bollinger Bands
Pattern at the lower Bollinger Band with recovery toward middle.
Vwap
Reclaiming VWAP on the engulfing is strong.
Ichimoku Cloud
Pattern near Kumo cloud with bullish candles pushing into the cloud.
Elliott Wave
Commonly at the end of Wave 5 or Wave C.
Wyckoff Phase
May appear during spring or SOS phases.
Market Profile
Pattern at Value Area Low or Point of Control.
Order Flow
Dramatic delta shift from negative to positive on engulfing.
Open Interest
Rising OI on the third candle confirms new longs.
Multi-Timeframe Analysis
Higher Timeframe Alignment
Weekly support with a daily Three Outside Up is strongest.
Lower Timeframe Entry
Use 4-hour chart to time entry on the daily confirmation candle.
Timeframe Confluence
Weekly support, daily pattern, 4-hour structure.
Top-Down Approach
Weekly identifies support, daily identifies pattern, intraday times entry.
Statistics
Historical Examples
AMZN Three Outside Up at Support
successAMZN formed a Three Outside Up at $110 support. The engulfing and confirmation candles launched a rally to $130.
Lesson: Three Outside Up at support in quality stocks produces reliable reversals.
EUR/USD Reversal
successEUR/USD formed a Three Outside Up at 1.0650, triggering a rally to 1.0850.
Lesson: Works well on 4-hour forex charts at round number support.
Failed in Bear Market
failureCOIN formed a Three Outside Up but fundamentals overwhelmed the reversal signal.
Lesson: Even strong reversal patterns fail when fundamentals deteriorate.
Variations
Gapped Three Outside Up
The second candle gaps down before engulfing, creating a more dramatic reversal.
Weak Confirmation
The third candle is small and barely closes above the second's close.
Confusion Matrix
Patterns commonly confused with Bullish Three Outside Up and how to distinguish them.
Bullish Engulfing
8500% similarIf a third candle closes above the engulfing's close, it is Three Outside Up. Two candles alone is a standalone engulfing.
Key Differences
- Engulfing is two candles without confirmation
- Three Outside Up adds a confirming third candle
Bullish Three Inside Up
6000% similarInside = second candle within first (harami). Outside = second candle engulfs first.
Key Differences
- Three Inside Up has the second candle inside the first (harami)
- Three Outside Up has the second candle outside (engulfing) the first
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 Engulfing is one of the most popular and reliable two-candle reversal patterns. A large bullish candle completely engulfs the prior bearish candle body, signaling a decisive shift from selling to buying control.
The Morning Star is a three-candle bullish reversal pattern consisting of a large bearish candle, a small star candle showing indecision, and a large bullish candle confirming the reversal. It is one of the most widely recognized and reliable bottom reversal signals.
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.
The Bearish Abandoned Baby is one of the rarest and most reliable top reversal patterns in candlestick analysis. It features a doji that is completely isolated by gaps on both sides, signaling an abrupt and dramatic shift from buying to selling pressure.
The Bearish Advance Block shows three consecutive bullish candles with progressively smaller bodies and longer upper shadows, signaling that buying momentum is weakening and a reversal or consolidation is likely.
Pro Tips & Common Mistakes
Pro Tips
- One of the most reliable three-candle reversal patterns — prefer it over standalone engulfing
- Volume expanding across all three candles is the strongest confirmation
- The second candle should open below and close above the first candle's body for complete engulfing
- Best results at key support levels with RSI divergence
- Use the first candle's low as your stop reference
Common Mistakes
- Trading the engulfing alone without the third candle confirmation
- Accepting a weak third candle that barely closes above the second
- Ignoring the broader trend context
- Not checking volume — expanding volume is essential
- Setting stops too tight
Advanced Techniques
- Use as an entry trigger for larger swing positions at key support
- Combine with order flow analysis on the engulfing candle
- Apply multi-timeframe analysis for higher probability
- Use call spreads for leveraged, defined-risk exposure
Institutional Perspective
Institutions view the Three Outside Up as a confirmed reversal signal. The engulfing shows initial demand, and the confirmation candle proves staying power. They often use this as a trigger for position building at key levels.
Fun Facts
- Consistently ranks among the top 5 most reliable reversal patterns in statistical studies.
- Combines the two strongest reversal elements: engulfing (immediate power shift) and confirmation (sustained momentum).
- Many quantitative trading models use the Three Outside Up as a primary reversal signal.
Frequently Asked Questions
A three-candle reversal: a bearish candle engulfed by a bullish candle, followed by a third bullish candle closing above the engulfing's close, confirming the reversal.
Three Outside Up adds a confirming third candle, making it approximately 10% more reliable than the standalone engulfing.
Below the first candle's low or the engulfing candle's low for a clear invalidation level.