After an established uptrend a clear bearish Engulfing pattern occurs (one blue candle and a second bear move that drives price below the prior day low and closes near the bottom of the range). The third day is a red day with an even lower close than the second day.
In a market characterized by uptrend, day-twos red candle close completely below day-one, engulfing it completely. The first two days are a classic pattern that suggests a sell-off has taken over the market and is breaking the established trend.
This bearish reversal is confirmed by a still lower day on day-three.
Connections to Bearish Engulfing Pattern
The Bearish Three Outside Down pattern is just a continuation for Bearish Engulfing with the third day as confirmation for trend reversal. A Bearish Engulfing pattern by itself is a moderately reliable reversal signal, but when it is followed by a red day (forming the Bearish Three Outside Down), the pattern becomes much more reliable.