Three Outside Down Pattern: The Candles at Disney's January 2022 Top and Adobe's September 2025 High

On January 5, 2022, two sessions after the S&P 500's record close, Disney completed a three outside down at its falling 50-day average. Sold at that close with a stop above its high, the trade risked 3.3%. By June 21, 2022 the stock was down 39.9%.

On September 22, 2025, Adobe completed one at its highest price since July 2025. The risk was 1.9%. By February 23, 2026, after the software sell-off, the stock was down 32.2%.

Neither stock has traded above its pattern's high since. Here is how to read a three outside down, where the stop goes, and how to find the next one.

What the fall cost#

A three outside down is a sell signal for holders and an entry for short sellers.

Prices are split-adjusted, as on the chart.

The three outside down in one table#

A three outside down is three daily candles: a green day, a red day whose body swallows the green body, then a red day that closes lower still. The first two days are a bearish engulfing: sellers take back the whole green day. The third day confirms it: they keep selling.

These are the rules the VCP Scanner terminal uses to name a three outside down on a daily chart.

Day 1 can be any size. Disney's was green by 93 cents; Adobe's by 60 cents.

The position rule matters most. A three outside down comes after a rally. The same three bars upside down after a decline are a three outside up, and read bullish.

Three outside down and its look-alikes#

The three inside down is the same idea with a weaker second day: day 2's body sits inside day 1's, a bearish harami, and day 3 has to close below day 1's open. The evening star puts a small middle day above day 1's close.

Example 1: Disney (DIS) as the S&P 500 set its record, Jan 3-5, 2022#

Open DIS in the VCP Scanner terminal →

Disney fell 7.1% on Nov 11, 2021, after Disney+ added only 2.1 million subscribers in a quarter. It bounced 12.9% from its Dec 1 low into its falling 50-day average. Day 1, Jan 3, 2022, was the S&P 500's record close of 4,796.56, a record that stood until January 2024. Day 2 opened 1.83 above day 1's close and closed 10 cents below day 1's open. Day 3, the day the Fed's minutes sent the Nasdaq down 3.3%, closed 54 cents lower.

What followed:

• Next session (Jan 6): closed at 156.90, +1.1%.
• Jan 7: a high of 159.30, 1.02 under the stop. The stop held.
• Jan 14: 151.94, the first close below the pattern's low of 155.10.
• Ten sessions later (Jan 20): 147.62, −4.9%.
• Mar 14: 129.03, −16.9%.
• Jun 21: 93.29, −39.9%, Disney's lowest close since March 2020. That is 12.1 times the 5.13 risked on each share.
• The high of 160.32 was never taken out. On Nov 3, 2026 Disney closed at 114.18, 26.4% below the pattern's close.

Its one 5% gap in the fall went the other way. On Feb 10, 2022, the day after an earnings report in which Disney+ added 11.8 million subscribers, the stock opened 6.0% higher and reached 157.50, 2.82 under the stop. The fall resumed from there.

With $500 at risk, the stop sized the short at 97 shares, about $15,053. At the Jun 21 close those shares were up $6,004.

Example 2: Adobe (ADBE) before the 2026 software sell-off, Sep 18-22, 2025#

Open ADBE in the VCP Scanner terminal →

Adobe was 47.1% below its Nov 19, 2021 record close of 688.37, the top in the bearish engulfing article. It had bounced 12.4% from its Aug 12 low, and day 1 was its third straight gain. Day 2 opened 1.48 above day 1's close and closed 96 cents below day 1's open. Day 3 closed 1.82 lower. It was red by only 8 cents, so the terminal names it a doji too.

What followed:

• Next session (Sep 23): a high of 368.73, 2.13 under the stop, then a close at 361.78, −0.6%. The stop held.
• Sep 24: 353.27, the first close below the pattern's low of 359.36.
• Ten sessions later (Oct 6): 350.14, −3.8%.
• Nov 20: 312.40, −14.2%.
• Feb 3, 2026: −7.3% in a day, as software stocks sold off on fears that new AI tools would replace them.
• Feb 23, 2026: 246.68, −32.2%, Adobe's lowest close since January 2019. That is 17.3 times the 6.78 risked on each share.
• The high of 370.86 was never taken out. On Nov 3, 2026 Adobe closed at 246.14, 32.4% below the pattern's close.

There was not one 5% gap on the way to Feb 23, 2026.

With $500 at risk, the stop sized the short at 73 shares, about $26,578. At the Feb 23, 2026 close those shares were up $8,570.

Where a three outside down counts: key levels#

A three outside down on a level is a test of that level from below. In the terminal, the Only at a key level switch is on by default and keeps the ones that close back below one of these:

Disney's came at the 50-day from below: its 50-day average was falling, and days 2 and 3 both traded above it and closed back below. It shows with the switch on, and the inspector reads "at the 50-day from below". Adobe's came at its highest price since July 2025, on none of these levels. To see ones like it, turn Only at a key level off.

Both stocks were in Stage 4, Stan Weinstein's declining stage, so each pattern marked the top of a bounce inside a downtrend. Disney's capped a 12.9% bounce from its Dec 1, 2021 low, and Adobe's a 12.4% bounce from its Aug 12, 2025 low.

How to trade a three outside down#

1. Find the high. A three outside down comes after a rally. Look for it at a prior high, a failed breakout's pivot, a falling average or a fresh multi-month high, like Disney's at its falling 50-day in January 2022.
2. Check the bars. Day 1 is green, day 2's red body covers it, and day 3 is red and closes below day 2. Disney's day 2 closed 10 cents below day 1's open and Adobe's 96 cents.
3. Choose your entry. Holders sell or tighten their stop at day 3's close, and some short sellers enter there. Others wait for a close below the pattern's low. Adobe gave that close two sessions later and Disney seven.
4. Put the stop above the high. Above the highest of the three highs, or above the highest high of the test if price went higher earlier in it. The terminal calls this "the high, test included". Disney's risk was 3.3% and Adobe's 1.9%.
5. Size from the stop. Shares = money at risk ÷ (stop − entry). With $500 at risk on Adobe: 500 ÷ (370.86 − 364.08) = 73 shares.

Find three outside down patterns on any chart in VCP Scanner#

• Open a stock in the terminal, for example DIS or ADBE.
• Open Candles in the chart toolbar and tick Three outside down, or use the Bearish quick pick for every bearish name.
• Only at a key level is on by default. Turn it off to see every three outside down on the chart.
• The chart jumps to the latest one. A dot marks each one above its middle bar, and the selected one shows its stop on the price scale.
• The inspector lists the dates, close, stop, risk to stop, level, volume and stage. Walk through the others with the ← and → keys.
• Mark the ones you care about with the drawing tools. The arrows in the charts above are the Arrow Marker (Alt+A): click where the arrow starts, then click the candle.

Candles are free, on daily, weekly and monthly charts.

Bottom line#

• A three outside down is a bearish engulfing confirmed: a green day, a red day whose body covers it, then a red day that closes lower still.
• Disney's marked its January 2022 top and Adobe's its September 2025 high. They risked 3.3% and 1.9%, and the stocks fell 39.9% and 32.2% within 120 sessions.
• The pattern's high is the stop. It defines your risk before you take the trade.

Data: VCPScanner daily market data through Nov 3, 2026, split-adjusted. The examples are for education, not recommendations.