How is three outside up different from a bullish engulfing?

It is a bullish engulfing plus a third candle closing higher. The engulfing makes the claim; the third candle verifies it. The confirmed version fails less often in most testing but enters meaningfully later.

Does the second candle need to engulf the shadows too?

The standard definition requires body-over-body engulfment only. Some traders prefer full-range engulfment as a stricter filter, which reduces frequency and tends to select more decisive candles.

Where should the stop go, given how wide the pattern is?

The logical invalidation is beyond the engulfing candle's extreme. When that distance is unacceptable, the common alternatives are waiting for a pullback entry or sizing down, not tightening the stop inside the pattern where normal noise will hit it.

Is the pattern useful on intraday charts?

It scans fine on any timeframe, but intraday engulfings are more often artifacts of session opens and news bars, so most practitioners weight higher-timeframe instances more heavily and demand location context intraday.

Three Outside Up/down

Three outside up and three outside down are three-candle reversal patterns built on the engulfing pattern. It is a Chart & Candlestick Patterns concept.

What is a Three Outside Up or Three Outside Down?

Three outside up and three outside down are three-candle reversal patterns built on the engulfing pattern. The three outside up begins in a decline with a dark candle, followed by a white candle whose real body engulfs the first body entirely (the bullish engulfing), and completes with a third candle closing above the second candle's close. The three outside down mirrors it at the top of an advance: a white candle, a dark body engulfing it, and a third candle closing lower still.

The pattern formalizes the confirmation step. An engulfing candle is already a strong two-candle statement, one session fully reversing the prior session's body, but a meaningful fraction of engulfing signals stall or reverse immediately. Requiring a third candle to extend in the reversal direction filters out engulfings that had no follow-through, at the cost of entering one candle later. Like its sibling three inside up/down, this confirmation-inclusive naming is generally associated with Gregory Morris's candlestick pattern work.

Traders care because the structure is objective end to end: engulfing relationship, then a directional third close, then a defined invalidation at the pattern's far extreme. It is one of the more commonly implemented reversal patterns in scanners for exactly that reason. The honest limitation is arithmetic: an engulfing candle is by definition large, and the third candle extends further, so entries on completion routinely sit a long way from the logical stop.

How to identify three outside up/down

The engulfing relationship is the heart of the pattern; verify it on real bodies, not shadows.

1Confirm trend context: a decline before a three outside up, an advance before a three outside down.
2Check the engulfing: the second candle's real body must fully contain the first candle's real body, and be colored against the prior trend.
3Require the third candle to close beyond the second candle's close in the reversal direction, confirming follow-through.
4Prefer engulfings at meaningful locations, a support level, resistance level, or trend extreme, over mid-range instances.
5Set invalidation beyond the pattern's opposite extreme: below the engulfing candle's low for three outside up, above its high for three outside down.

How traders use it

As a confirmed reversal entry: enter on the third candle's close with the stop beyond the engulfing candle's extreme, accepting the wide stop as the price of confirmation.
As a filter over raw engulfing signals: systems that generate too many engulfing entries often adopt the three outside completion rule to cut the count and remove the no-follow-through cases.
As a structure-alignment signal: the pattern carries more weight when the third close also takes out a swing point or reclaims a level, turning a candle pattern into a structural event rather than an isolated shape.
As a reward-to-risk decision point: because the completed pattern spans three candles of range, some traders use the signal for bias only and seek entry on a subsequent pullback toward the engulfing body rather than chasing the third close.

Three outside vs neighboring patterns

Bullish/bearish engulfing: The engulfing is the first two candles of this pattern. Three outside adds a confirming third close, trading earlier entry for fewer failed signals.

Three inside up/down: The inside version starts from containment (harami) rather than engulfment. Both append the same style of confirmation candle; the outside version starts from the stronger two-candle base.

Three-bar reversal: The Western three-bar reversal keys off bar extremes around a pivot rather than body engulfment, but both encode the same idea: a turn plus one bar of confirmed follow-through.