BEARISH THREE OUTSIDE DOWN
Definition
This is a confirmed Bearish Engulfing pattern. The first two candlesticks follow the classic Bearish Engulfing pattern, and the third day provides its confirmation.
Recognition Criteria
1. The market is currently characterized by a strong upward trend.
2. We see a Bearish Engulfing pattern in the first two days.
3. Then, we see a black candlestick on the third day with a lower close than the second day.
Pattern Requirements and Flexibility
A Bearish Engulfing pattern should be identified with all the previously established rules. On the third day, a black candlestick closes lower than the previous day’s close.
Trader’s Behavior
The first two days of the Bearish Three Outside Down pattern form a Bearish Engulfing Pattern. On the third day, the pattern is confirmed as the uptrend is disrupted, indicated by a black candlestick closing at a new low for the last three days. However, further confirmation is still required to establish a bearish reversal.
Sell/Stop-Loss Levels
The confirmation level is determined by the last close. For confirmation, prices should fall below this level.
The stop-loss level is defined as the last high. If, following the bearish signal, prices rise instead of falling and either close or make two consecutive daily highs above the stop-loss level, without detecting any bullish pattern, the stop-loss is triggered.