Three Outside Trading System - MANUAL

1. INTRODUCTION

What is Three Outside Trading System?

This indicator helps you catch reliable reversal moments in the market by automatically detecting Three Outside Up and Three Outside Down patterns. It filters out weak setups and shows you only high-quality engulfing reversal opportunities with entry points, stop losses, and profit targets already calculated. Perfect for swing traders and position traders who want to enter new trends early when the market shows clear signs of direction change.

Three Outside Trading System helps you spot these powerful engulfing reversal patterns on your MetaTrader 5 charts — automatically. The indicator scans every candle, filters out weak setups, and shows you only the best trading opportunities with clear entry points, stop losses, and profit targets already calculated. It works on any market and any timeframe, giving you more time to focus on your trading decisions instead of searching for patterns.

What Are Three Outside Patterns?

Three Outside patterns are powerful reversal patterns that appear when market momentum shifts from one direction to the other. These patterns show a three-bar sequence where the second candle fully engulfs the first, followed by a third candle that confirms the new direction, making them reliable signals of real trend changes.

Three Outside Up (Bullish Reversal)

Appears after a downtrend when buyers begin to take control. The pattern consists of three consecutive candles where:

• Setup candle (bar 2): A small bearish candle showing seller exhaustion, can be relatively compact with body ratio ≥ 25% (minimum body strength)
• Engulfing candle (bar 1): A strong bullish candle whose body fully engulfs the setup candle's body, showing aggressive buyer dominance with body ratio ≥ 50% and range ≥ 0.50× ATR
• Confirmation candle (bar 0): A bullish candle that closes above the engulfing candle's close, confirming buyers have sustained control with body ratio ≥ 35%

The engulfing candle creates a dramatic reversal of the prior downtrend, and the confirmation candle validates that buyers remain in control. When you see this pattern forming near a support level, it signals that sellers are exhausted and buyers are ready to push prices higher.

Three Outside Down (Bearish Reversal)

Appears after an uptrend when sellers begin to take control. The pattern consists of three consecutive candles where:

• Setup candle (bar 2): A small bullish candle showing buyer exhaustion, can be relatively compact with body ratio ≥ 25% (minimum body strength)
• Engulfing candle (bar 1): A strong bearish candle whose body fully engulfs the setup candle's body, showing aggressive seller dominance with body ratio ≥ 50% and range ≥ 0.50× ATR
• Confirmation candle (bar 0): A bearish candle that closes below the engulfing candle's close, confirming sellers have sustained control with body ratio ≥ 35%

The engulfing candle creates a dramatic reversal of the prior uptrend, and the confirmation candle validates that sellers remain in control. When you see this pattern forming near a resistance level, it signals that buyers are exhausted and sellers are ready to push prices lower.

When you see these patterns forming near important support or resistance levels, they become even more reliable signals for potential trend reversals.

How the Indicator Finds Patterns

The indicator scans your charts in real-time and checks each potential pattern against multiple quality requirements:

1. Setup Bar Check: Verifies that the setup candle has a minimum body ratio (body/range ≥ 25%), allowing for relatively compact candles that show exhaustion
2. Engulfing Bar Check: Confirms that the engulfing candle's body fully engulfs the setup body (body-only engulfing, wicks can extend), has strong body ratio (≥ 50%), and sufficient size (range ≥ 0.50× ATR)
3. Confirmation Breakout Check: Ensures the confirmation candle has a strong body (body/range ≥ 35%) and closes beyond the engulfing candle's close, continuing the reversal direction
4. Quality Scoring Check: Calculates a score from 0% to 100% based on engulfing ratio, engulfing body strength, confirmation strength, and continuation depth

Only patterns that pass all these checks appear on your chart, so you don't waste time on weak or invalid setups.

Quality Score — How Good Is the Pattern?

Every pattern gets a quality score from 0% to 100%, like a grade on a test. This helps you focus on the best trading opportunities.

What the Score Means

The indicator checks four key factors to calculate the quality score:

Engulf Ratio (25% weight): How much larger the engulfing candle's body is compared to the setup body. Calculated as (engulfing_body / setup_body). Ideal range is 1.20-3.00. Higher ratios show more dramatic reversals. Small engulfing candles reduce the score.

Engulf Body Strength (25% weight): How strong the engulfing candle's body is relative to recent volatility (ATR). Calculated as (engulfing_body / ATR). Ideal range is 0.50-1.50× ATR. Stronger bodies show decisive directional conviction. Weak bodies reduce the score.

Confirmation Strength (25% weight): How strong the confirmation candle's body is relative to ATR. Calculated as (confirmation_body / ATR). Ideal range is 0.35-1.20× ATR. Stronger confirmation shows sustained momentum. Weak confirmation reduces the score.

Continuation Depth (25% weight): How far the confirmation candle closes beyond the engulfing candle's close, measured relative to ATR. Ideal range is 0.10-0.80× ATR. Deeper continuation shows stronger follow-through. Shallow continuation reduces the score.

Quality Threshold Setting

By default, the indicator only shows patterns scoring 0.35 (35%) or higher. You can adjust this in the settings:

• Raise to 0.50-0.70: See only the best signals (fewer but higher quality)
• Lower to 0.20: See more signals (more frequent but mixed quality)
• Tip: Start with the default 0.35 and adjust based on your backtest results

What You See on the Chart

When the indicator detects a Three Outside pattern, it draws everything you need to know directly on the chart:

Signal Markers

• Arrow icons: Green arrows pointing up mark Three Outside Up (bullish) signals. Red arrows pointing down mark Three Outside Down (bearish) signals. The arrow appears at the confirmation candle of the pattern.
• Quality labels: A small percentage label appears near the arrow showing the quality score (e.g., "73%") so you can quickly assess signal strength

Trading Lines

• Entry line: A blue horizontal line shows your entry price. This is positioned above the pattern high (for bullish signals) or below the pattern low (for bearish signals) with a buffer zone
• Stop Loss line: A red horizontal line shows where to place your stop loss. This is calculated based on pattern structure and volatility, with a clear "SL" label
• Take Profit lines: Two green horizontal lines show your profit targets. TP1 is the first conservative target, TP2 is the extended target for strong trends. Both are labeled clearly

Visual Zones

• Pattern highlight: A subtle shaded vertical zone highlights the three candles that form the pattern, making it easy to see the structure at a glance
• Tracking dots: Small colored dots appear during the signal lifecycle to show progress. Blue = pending entry, yellow = entry triggered, green = profit target hit, red = stop loss hit

Signal Lifecycle

Signals progress through different states, shown by changing colors and tracking dots:

1. Pending: Pattern just detected, waiting for entry confirmation. Signal shows with blue tracking dot.
2. Triggered: Entry price reached, trade is active. Tracking dot turns yellow.
3. Target Hit: Price reached take profit level. Signal turns green, tracking dot green.
4. Stop Hit: Price hit stop loss. Signal turns red, tracking dot red.
5. Cancelled: Signal invalidated before entry (pattern broke down). Signal disappears or grays out.

You can watch your signals evolve in real-time without opening any menus or panels.

Settings You Can Adjust

Here are the main settings that control how the indicator finds and displays Three Outside patterns:

Settings Tips

• Start with all default settings and let the indicator run for a few days to see how it performs on your chosen market and timeframe
• If you get too many signals, raise the quality threshold to 0.50 or increase the Min Engulf Body Ratio to 0.60
• If signals are too rare, lower the quality threshold to 0.25 or increase the Min Engulf Range/ATR to 0.60
• On high-volatility pairs like XAUUSD, you might need slightly wider Entry Buffer (0.10) and SL Buffer (0.20)
• Always backtest any setting changes on historical data before using them on a live account

Best Timeframes and Markets

Recommended Timeframes

Best Markets

• XAUUSD (Gold): Excellent pattern clarity on H1 and H4 timeframes. Strong engulfing candles make detection reliable.
• EURUSD, GBPUSD, USDJPY: Major forex pairs work well on all timeframes above M15. Best results on H4.
• US30, NAS100: Stock indices show clear Three Outside patterns on H4 and Daily timeframes during trend reversals.
• Cryptocurrency (BTCUSD, ETHUSD): Use Daily timeframe for clearer signals. Lower timeframes are too noisy.

The indicator works on any symbol and timeframe, but these combinations tend to produce the most reliable signals.

Getting Started — Quick Setup

Follow these steps to start using Three Outside Trading System:

1. Open MetaTrader 5 and load the chart for the market you want to trade (we recommend starting with XAUUSD on H4)
2. In the Navigator panel (left side), expand "Indicators" and find "Three Outside Trading System"
3. Drag the indicator onto your chart
4. A settings window appears — for your first time, click OK to use the default settings
5. Watch for signals over the next few hours or days. Green arrows = buy opportunities (Three Outside Up), red arrows = sell opportunities (Three Outside Down)
6. After observing initial signals, adjust the Quality Threshold if you're getting too many or too few signals
7. Set up alerts by opening the indicator settings again and enabling "Push Notifications" to get alerts on your phone when patterns appear

That's it! The indicator is now scanning your charts automatically and will alert you when high-quality Three Outside patterns appear.

All Features at a Glance

Pattern-Specific Features

• ✓ Three-candle engulfing reversal detection with setup exhaustion, engulfing dominance, and confirmation continuation validation
• ✓ Quality scoring 0-100% based on equal-weight factors (engulf ratio 25%, engulf body strength 25%, confirmation strength 25%, continuation depth 25%)
• ✓ Automatic entry buffer zones calculated from pattern structure + ATR for optimal entry timing
• ✓ Dual profit targets (TP1 conservative, TP2 extended) based on pattern height and engulfing strength
• ✓ Volatility-adaptive thresholds that adjust detection criteria based on recent ATR (average true range)
• ✓ Body-only engulfing validation ensuring engulfing candle body fully contains setup body (wicks allowed to extend)

The following professional-grade features are available across all our indicators:

Common Questions

Q: Why does the stop loss seem wide sometimes?

The indicator calculates stop loss based on the entire three-candle pattern structure plus recent volatility (ATR). Wider stops protect against normal market noise and prevent premature stop-outs during small pullbacks within the larger trend. Three-candle engulfing patterns naturally create larger structures than single-candle patterns. You can adjust the SL Method in settings to "ATR Only" for tighter stops, but be aware this may increase the risk of false stop-outs, especially during initial pullbacks after the pattern completes.

Q: What's the best timeframe for this pattern?

H4 gives the best balance of signal quality and frequency. You'll typically get 8-18 high-quality signals per month on major pairs, with excellent reliability. Start there and adjust based on your trading style. If you're a day trader, H1 works well but requires tighter quality filters (raise threshold to 50%). For position trading, Daily timeframe provides the strongest signals but you'll wait longer between opportunities.

Q: How can I get fewer signals?

Raise the quality threshold from 0.35 to 0.50-0.70 in the settings. You can also increase "Min Bars Between Patterns" from 5 to 10, which prevents signals from appearing too close together. Another option is to raise "Min Engulf Body Ratio" to 0.60 and "Min Engulf Range/ATR" to 0.60 — this will only show patterns with very strong engulfing candles. Finally, enable the "Extreme Zone Filter" to only get signals near key support/resistance areas.

Q: How is this different from just a bullish/bearish engulfing candlestick?

The indicator checks far more than just a classic two-candle engulfing. It verifies that the setup candle shows exhaustion (minimum body strength), that the engulfing candle has sufficient size relative to ATR and strong body ratio, that a third confirmation candle continues the reversal momentum beyond the engulfing close (not just any close), and that the continuation depth is meaningful. A random engulfing without confirmation might fail all these tests. The quality score tells you exactly how well the pattern meets professional technical analysis criteria.

Q: Can I use this with other indicators?

Yes. The built-in Market Structure filter adds BOS (Break of Structure) and CHOCH (Change of Character) context to signals, helping you understand if the reversal is likely to hold. Many traders combine this indicator with support/resistance levels or moving averages for additional confirmation. The EA Signal Buffers feature lets automated trading systems read the indicator's signals, so you can build expert advisors that trade these patterns automatically.

What's New — Version v1.00

This is the v1.00 release of Three Outside Trading System. Key features include:

• Automatic Three Outside Up and Three Outside Down engulfing reversal pattern detection on all timeframes
• Quality scoring from 0-100% based on engulf ratio, engulf body strength, confirmation strength, and continuation depth
• Five filter systems (Quality, Extreme Zone, Direction, Stoploss Hunt, Signal Zone) to reduce false signals
• Multi-timeframe scanner to find patterns across 50+ symbols and 8 timeframes simultaneously
• Donchian and ATR stop loss calculation methods for flexible risk management
• Trailing stop loss with automatic adjustment as price moves in your favor
• Real-time alerts: popup, sound, email, and push notifications to your mobile device
• Signal dashboard showing live statistics and pattern counts
• Full EA integration with 10 buffer outputs for automated trading systems
• Chart theme support (dark, light, custom) for comfortable viewing
• No repainting — all signals are final and locked after the confirmation candle completes

Getting Help

If you have questions or need support:

• Documentation: Check the detailed user guides linked in the Features section above
• MQL5 Profile: https://www.mql5.com/en/users/khiemni/seller
• Direct Contact: Message me through MQL5 for technical support

I'm committed to helping you get the most out of this indicator.

Ready to Start?

Three Outside Trading System is designed to save you time and help you find high-probability engulfing reversal patterns automatically. Attach the indicator to your chart and start with the default settings — you can fine-tune everything later as you get comfortable with how it works.

Happy trading!

Ich Khiem Nguyen

Three Outside Trading System v1.00 — Created 2026-02-21