If you are a newbie to the reversal or continuation candlestick pattern, you may feel like time is going faster when observing the chart, making you not recognize the pattern to execute your trades and miss a lot of good trading opportunities. Is there any way to fix this? Don’t worry, I will introduce to you the Falling Three Methods candlestick pattern. In addition to the high accuracy, it also gives you more time to prepare carefully, helping you to seize opportunities when they appear on the Japanese candlestick chart.
What is the Falling Three Methods pattern?
Falling Three Methods is a continuation candlestick pattern that occurs in a downtrend. It consists of 5 candles signaling the possibility that the market will continue the stronger downtrend.
- The first candle is a strong bearish candle from the previous downtrend
- The second, third, and fourth candles are short body candles inside the first candle’s body
- The fifth candle is a large bearish candle that closes lower than the first candle. Usually, it also has a bearish gap.
- The trading volume of the first and last candles is often larger than the middle candles.
The meaning of the Falling Three Methods pattern
After a downtrend, the price recovers with low volume in small candles, showing that the market is under the pressure of bottom fishing.
However, in several consecutive rising sessions, the market could not make a new high compared to the first candle. It can be partly guessed that the market wants to continue the downtrend.
The last strong bearish candle shows that the market has decided to continue the trend. This decision is further reinforced if a price gap appears.
When the pattern appears, it also marks an important psychological milestone. That could be an old support zone but the last candle of the pattern breaks this psychological threshold. This support area could become a resistance zone in the future.
The reliability of this model is very high. However, the subsequent confirmation by a bearish candle is still needed.
How to trade with Falling Three Methods candlestick pattern
Entry point: you can enter a bullish order as soon as the pattern is completed. That is when the fifth candle closes. Some traders often prefer to enter before the 5th candle completes for a better sell point. However, with this entry, you need to react quickly to unexpected market movements and it may not be suitable for inexperienced traders.
Or you can enter an order when the price retests the highest point of the first candle. With this way of trading, it will be safer when the price returns to test the previously crossed resistance zone. However, sometimes you will also miss the opportunity because the price doesn’t return to the desired price range.
Stop Loss: The stop loss level depends on the risk tolerance of the trader. Traders who want a short stop loss can place a stop loss at the top of the 5th candle. If you wait for the price to retest the high of the pattern, you can place a stop loss above the nearby resistance zone.
Take Profit can be placed at nearby bottoms or accumulation zones. Besides, you can also monitor the chart to recognize when the trend reverses, thereby closing the profit-taking position.
Through the above article, I hope you have a thorough understanding of the Falling Three Methods pattern. To reduce the risk, you shouldn’t use this pattern when it is located in strong support zones as they create strong resistance that limits the possibility of downtrend continuation. Good luck with your trading.
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