CDL3OUTSIDE (CDL3OUTSIDE)

CDL3OUTSIDE (Three Outside Up/Down) is a three-candle reversal confirmation pattern. For Three Outside Up (bullish): First candle is bearish. Second candle is a bullish engulfing pattern - opens below the first candle's close and closes above its open, completely engulfing the first candle's body. Third candle confirms by closing even higher than the second, validating the reversal. For Three Outside Down (bearish): First candle is bullish, second is bearish engulfing, third confirms with lower close. The pattern combines the strong engulfing reversal signal with a confirmation candle, making it more reliable than the two-candle engulfing pattern alone.

Three Outside Up/Down is highly reliable because it requires both an engulfing reversal AND confirmation, filtering false signals common with standalone engulfing patterns. For bullish setups, enter long positions when the third candle closes higher, especially if volume increases across the pattern. For bearish setups, enter shorts when the third candle closes lower. The pattern is most effective at key support/resistance levels or after extended trends showing exhaustion. Crypto traders particularly value this pattern for swing trading major altcoins at significant levels. Combine Three Outside patterns with momentum indicators: For bullish, confirm RSI rising above 30-40 and MACD showing bullish crossover. For bearish, confirm RSI falling below 60-70 and MACD bearish crossover. Stop losses are placed just beyond the engulfing candle's extreme. This is a well-trusted pattern in the crypto community.