Everything that you need to know about the Falling Three Methods candlestick pattern is here.
Today you’ll learn:
The Falling Three Methods is a Japanese candlestick pattern.
It’s a bearish continuation pattern.
Usually, it appears as a pause after a price move to the downside and shows rejection from higher prices.
The pattern is bearish because we expect to have a bear move after the Falling Three Methods appears at the right location.
It’s a continuation pattern because before the Falling Three Methods appears we want to see the price going down, thus it’s also a frequent signal of a trend continuation.
The Falling Three Methods pattern is also a mirrored version of the Rising Three Methods candlestick pattern.
The Falling Three Methods candlestick pattern is formed by five candles.
Here’s how to identify the Falling Three Methods candlestick pattern:
It looks like this on your charts:
The Falling Three Methods candlestick pattern may appear a little different on your charts.
The candles may or not have wicks.
The red ones should have them small.
The green ones, if they have wicks and are big, ideally we want to see them on the top of the candles.
Here’s what it may look like on your charts:
To trade the Falling Three Methods candlestick pattern it’s not enough to simply find a series of candles with the same shape on your charts.
Let me explain.
What makes a pattern valid is not just the shape, but also the location where it appears.
This means that the same shape appearing at different locations may have different meanings.
When trading the Falling Three Methods, we want to see the price first going down, making a bearish move.
A Falling Three Methods appearing after this bearish move is a sign of a possible trend continuation to the downside.
It looks like this:
Now you’re thinking.
“When do I open my trade?”
It’s simple, the Falling Three Methods pattern is traded when the low of the last candle is broken.
That’s your conservative trigger to short.
It looks like this:
Now, you also want to protect yourself because when trading things don’t always move as we expect.
And for that, we use a stop loss.
There are several different types of stop losses.
The most common is to use the other side of the pattern to set it.
Like this:
But wait, don’t jump into trading the Falling Three Methods right yet.
There are a few more things to know.
Ideally, to increase the accuracy, we want to trade the Falling Three Methods candlestick pattern by combining it with other types of technical analysis or indicators.
Here are a few strategies to trade the Falling Three Methods pattern.
As a bearish continuation pattern, the Falling Three Methods is a great pattern to watch for when the price is on a downtrend.
Just wait for a pullback to start, and then spot when the Falling Three Methods appears.
That often signs the end of the pullback and the start of the new leg to the downside.
Here’s an example:
Support and resistance levels are great places to find entries.
Since we are looking for continuation moves to the downside, we want to trade the Falling Three Methods using support levels broken and retested.
How does it work:
Here’s an example:
Moving averages are great trading indicators to trade trends.
The idea here is to trade pullbacks to the moving average when the price is on a downtrend.
How does it work:
Here’s an example:
This is a bit different from the other trading strategies.
To find a bearish RSI Divergence we want to see the price on an uptrend first, making higher highs and higher lows.
Here’s how it works:
It looks like this:
Another popular way of trading the Falling Three Methods candlestick is using the Fibonacci retracement tool.
Fibonacci shows retracement levels where the price will tend to revert frequently.
Depending on the strength of the trend, different levels are more likely to work better with the Falling Three Methods pattern. Here you can learn more about the different Fibonacci retracement levels.
Here’s how the strategy works:
Here’s an example:
Pivot Points are automatic support and resistance levels calculated using math formulas.
If you are day trading, the Daily Pivot Points are the most popular, although the Weekly and Monthly are frequently used too.
Here’s how to trade the Falling Three Methods pattern with Pivot Points:
According to the Encyclopedia of Candlestick Charts by Thomas N. Bulkowski (link), the Falling Three Methods candlestick pattern has a success rate of 71%.
Now I want to hear from you.
Do you trade the Falling Three Methods candlestick pattern?
Let me know in the comments below.
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This is a very creative process for timing trade entry. Falling three 3⃣
Just do what it works better for you. It's the only thing that matters.