Pattern Detail

Bearish Three Outside Down

Three-candle bearish reversal after a rally: an up candle swallowed by a larger down candle, then a third down candle that confirms.

A real Bearish Three Outside Down on NQ daily bars, May 6, 2022. Price then followed through 2.4% over the next 5 bars. The bright candles are the pattern; the dimmed bars are surrounding context.
A real Bearish Three Outside Down on NQ daily bars, May 6, 2022. Price then followed through 2.4% over the next 5 bars. The bright candles are the pattern; the dimmed bars are surrounding context.
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How to read this

Everything here is in R, the setup's own risk. 1R is the distance from the entry (the pattern's closing price) to where it would be proven wrong — its highest high over the 3 bars that form it. So "offered 2R" means price ran twice that distance in your favor at some point before the stop. It does not assume you took profit there: a target is a strategy choice.

Room offered (≥ 1R)

44.0%

Reliable

Offered at least 1× its risk before the stop, vs 41.5% for a random short entry (+2.5 pts).

Move size vs normal

1.08×

Realized range over the next 20 bars vs a random bar. About normal.

Typical room (20-bar)

1.14R

Average run in favor (capped at 3R), vs 1.07R for a random short entry.

Summary

Offered at least 1R of room 44.0% of the time vs 41.5% for a random short entry — a 2.5-point gap, wider than the ±1.0-point margin of error from chance, and it holds across the sample. A real, if modest, tendency to offer more room than the market alone.

Room offered, this setup vs a random short entry

Outcome This setup Random entry Edge
Offered ≥ 1R 44.0% 41.5% +2.5
Offered ≥ 2R 23.3% 27.0% -3.6
Offered ≥ 3R 13.0% 18.8% -5.7
Stopped < 1R 47.5% 55.6% -8.1
Went sideways 8.5% 2.9% +5.6

9,548 occurrences · 1,162,047 random-entry controls · 20-bar horizon

A three outside down is a bearish engulfing that gets confirmed. After a rise, a down candle opens above the prior up candle and closes below it, swallowing it whole. The third candle then closes lower still, sealing the turn. The engulfing raises the alarm, and the third candle follows through on it.

Three outside down, the confirmed bearish engulfing, appears in Steve Nison’s Japanese Candlestick Charting Techniques (1991) and later candlestick texts.

How to spot it

  • The market is rising into the pattern.
  • The first candle is an up (green) candle.
  • The second candle is a larger down (red) candle that fully swallows the first candle’s body, a bearish engulfing.
  • The third candle is another down candle.
  • The third candle closes lower than the second, confirming the reversal.

The dashed box on the chart above marks the three candles on a real occurrence, with the advance before and the move after.

The psychology

The first up candle still belongs to the buyers, in step with the rise. Then the down candle opens above it and closes below it, swallowing the whole body in one bar. Everything the up candle gained for the buyers is handed straight to the sellers, and price ends below where the prior session began. Anyone who bought into that area is now offside, and some will sell to get out, which adds weight to the move down.

The third candle is what turns a single engulfing into a confirmed one. A lone bearish engulfing can be a spike that the next session shrugs off. Here the third candle closes lower still, so the sellers who took control hold it and press rather than letting buyers reclaim the ground. The follow-through says the handover stuck: control changed hands at the top and stayed changed.

A confirmed top still has to deliver, and the figures below measure how much room it tends to give.

Does it actually work?

A pattern is a setup, not a trade, so the honest question is not “did it win” but “how much room did it tend to offer before it was proven wrong.” The tabs below answer that across five futures markets (Nasdaq, S&P 500, gold, crude oil, natural gas) and seven timeframes from one minute to one day.

For each occurrence we measure the room the move offered in units of the pattern’s own risk, then set it against what a random entry on the same market would have done. When the pattern offers more room more often than chance, that shows up as a real edge. When it does not, the page says so plainly.

Read it with the sample size in view. On the faster timeframes a pattern can fire thousands of times, enough to trust. On the daily chart it is far rarer, so treat those numbers as a hint rather than a verdict. Thin samples are flagged for you on the page.

How we measured it

  • Entry is the close of the final candle of the pattern.
  • One unit of risk, 1R, is the distance from that close up to the pattern’s invalidation point: the highest high of the three candles that form it. If price trades through there, the setup is wrong.
  • We then follow the next 20 bars and record how far price ran in your favor, in multiples of that risk, before the stop was hit.
  • Every figure is set against a random entry on the same market and timeframe, so the market’s own drift is accounted for.
  • No profit target and no position sizing. Where you take profit is a strategy choice; this measures only the room the pattern tends to give.

What this page does not cover

  • Volume on the pattern’s candles.
  • Whether the pattern forms at a meaningful resistance level.
  • Pairing it with a trend filter or a confirming signal.
  • A profit target or position sizing. We use the pattern’s own invalidation point as the stop to define risk, but where you take profit, and how much you put on, are strategy decisions this page leaves to you.

Sample Bearish Three Outside Down Firings (20)

Based on data through Apr 29, 2026

Time Risk (pts) Room offered Result
Apr 29, 2026, 1:05 PM CDT 79.25 0.25R Stopped
Apr 29, 2026, 11:15 AM CDT 63.25 0.90R Flat
Apr 29, 2026, 5:35 AM CDT 10.75 3.00R Ran ≥1R
Apr 28, 2026, 11:30 AM CDT 48.25 0.25R Stopped
Apr 28, 2026, 8:10 AM CDT 41.5 0.26R Stopped
Apr 27, 2026, 11:50 PM CDT 15.25 3.00R Ran ≥1R
Apr 27, 2026, 11:55 AM CDT 15.75 0.00R Stopped
Apr 27, 2026, 1:00 AM CDT 21.5 1.51R Ran ≥1R
Apr 24, 2026, 11:05 AM CDT 34 0.21R Stopped
Apr 24, 2026, 8:25 AM CDT 57 1.39R Ran ≥1R
Apr 24, 2026, 3:30 AM CDT 60 0.49R Flat
Apr 24, 2026, 3:05 AM CDT 26 0.12R Stopped
Apr 23, 2026, 7:45 PM CDT 24 1.59R Ran ≥1R
Apr 23, 2026, 5:25 PM CDT 13.75 0.84R Stopped
Apr 23, 2026, 2:35 PM CDT 60 0.60R Stopped
Apr 23, 2026, 6:15 AM CDT 19 1.80R Ran ≥1R
Apr 21, 2026, 11:20 PM CDT 18 1.89R Ran ≥1R
Apr 21, 2026, 12:51 PM CDT 78.25 0.36R Stopped
Apr 21, 2026, 6:11 AM CDT 31.75 0.05R Stopped
Apr 20, 2026, 2:00 PM CDT 17.75 1.21R Ran ≥1R

Sample backtest

Real backtested runs of this pattern, with commissions and slippage. Open one for the full equity curve and metrics, or backtest it yourself on your own contract and dates.

Backtest this pattern

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