Three Inside Up: Explained in 60 Seconds

A three-inside-up is a three-candle reversal that appears only after a decline. The first candle is long and bearish. The second candle is a smaller-bodied candle whose entire range sits inside the first candle’s range. The third candle closes above the high of the first candle.

What forms the pattern

The sequence begins with a clear down-move that leaves a long bearish candle. The next session opens inside that candle and closes inside it as well, producing the smaller second body. The third session then rallies and finishes above the high of the opening candle, completing the reversal signal.

Confirmation rules

Three conditions must be met before the pattern is considered valid. The second candle’s body must lie entirely inside the first candle’s body. The third candle must close above the high of the first candle. The entire formation must occur after a genuine decline rather than within sideways movement.

How the pattern fails

The most common error is treating the first two candles alone as a completed signal. Without the third candle’s close above the initial high, the setup remains only a potential reversal. If price stalls or reverses again before that third close occurs, the pattern is invalidated.