Three Inside Up and Three Inside Down in Forex: How the Pattern Works and Where It Fails

Short answer: Three inside up is a three-candle bullish reversal: a large down candle, a small candle inside it (a harami), then a third candle that closes above the first candle’s open. Three inside down is the bearish mirror. The third candle is the confirmation. The pattern fails often, so use a stop loss.

Three inside up (left) and three inside down (right). Illustration, November 2026.

What the pattern looks like

Candle	Three inside up	Three inside down
1	Large bearish candle in a fall	Large bullish candle in a rise
2	Small bullish candle, body inside candle 1’s body	Small bearish candle, body inside candle 1’s body
3	Bullish candle closing above candle 1’s open	Bearish candle closing below candle 1’s open
Idea	Sellers lost control and buyers confirmed	Buyers lost control and sellers confirmed

The first two candles form a harami. The third candle is what makes it a three inside pattern. Some books only require the third close to be above the second candle’s high; stricter versions need a close above the first candle’s open. Definitions differ between books and charting platforms, so write down your own rule before you read a chart. For the basics of reading candles, see candlestick basics.

Why the third candle matters

A lone harami only says the move paused. Many haramis are followed by a continuation of the old direction. The third candle gives some evidence that the pause turned into a change: price has now travelled beyond the small candle in the new direction.

The cost is time. By the time the third candle has closed, part of the new move has already happened. The stop sits behind the pattern, so the distance from entry to stop is often large. That is the main trade-off of the pattern: a little more confirmation, a little less room.

Context decides

Candle patterns mean more in some places than others. Traders usually look for three inside up:

• after a clear fall, not after a few sideways candles;
• near support or another level where buyers appeared before;
• with the first candle large relative to recent candles, so that the small second candle is a visible pause.

A three inside up that forms directly under resistance has little room to run. One inside a sideways range market is just a normal bounce. The same checks apply in reverse for three inside down. Compare it with the closely related engulfing candle, which gives a faster two-candle signal.

A worked example

These are made-up prices on EUR/USD to show the arithmetic. It is not a real trade.

• Price falls and a large bearish 4-hour candle opens at 1.0900 and closes at 1.0830.
• Candle 2 is small and bullish, opening at 1.0840 and closing at 1.0865, entirely inside the first body.
• Candle 3 is bullish and closes at 1.0915, above the first candle’s open.
• The pattern low is 1.0820.
• Entry idea: buy near 1.0915 after candle 3 closes.
• Stop loss: 1.0810, 10 pips below the pattern low. That is 105 pips from entry.
• Target idea: the next resistance at 1.1070 is 155 pips away. The reward-to-risk ratio is about 1.5 to 1.

With a $1,000 account and a 1% risk rule ($10), a 105-pip stop gives about 0.01 lot, about $0.10 per pip, or $10.50 at risk. A smaller account may be unable to take the setup under that rule. The lot size calculator shows the formula, and position sizing explains the steps.

Where the pattern fails

• Weak third candle. A third candle with a long upper wick shows sellers returning.
• Resistance close above. Little distance to the first obstacle leaves a poor ratio.
• News-driven candles. A data release can create all three candles. See the economic calendar.
• Wide stop. The pattern low can be far from the entry, as in the example above.
• No prior trend. The pattern needs a move to reverse.
• Different definitions. A platform’s pattern scanner may mark setups your own rule would reject.

How to use it in a plan

1. Write the rule: how large candle 1 must be, how the second candle sits inside it, what candle 3 must do.
2. Check that the pattern follows a fall (or a rise) and sits near a level.
3. Decide the entry before the trade, for example a market order after candle 3 closes.
4. Set the stop beyond the pattern, compute the lot size from the distance, and check the ratio to the next level with the risk reward ratio page.
5. Skip the trade if the ratio is poor.
6. Log the result in your trading journal.

Practice before real money

Scroll back through one chart and mark every case that fits your rule. Count how many reversed, how many stalled and how many continued against you. A demo account lets you try entries without risk; see demo accounts. Your own count on your own pair and time frame says more than any general claim about success rates.

Bottom line

Three inside up and three inside down add a confirming candle to a harami, which makes the signal slower and a little more selective. They describe what price has already done, they fail often, and the stop usually sits far from the entry. Check the context, work out the reward-to-risk ratio first and size the trade from the stop. Only risk money you can afford to lose. CFDs are complex, high-risk instruments.