How to Trade Falling Three Methods Patterns

  • May 16, 2018

Watch our falling three methods pattern video.

Falling three methods patterns are five candlestick patterns found on stock charts. The falling three methods pattern is bearish. Watch our video above to learn more about falling three methods.

Falling three methods patterns is a continuation pattern. In fact, the stock is already in a strong downtrend when this pattern forms. At the completion of the pattern price should continue downwards.

Falling three methods patterns look a lot like bear flag patterns or rising wedge patterns. As a result, it's important not to get caught up in the exact name and formation of a pattern. The most important thing to remember is what those patterns mean. You can spend too much time trying to figure out the exact pattern.

Each pattern tells an important story so make sure you know what the different Japanese candlesticks patterns mean when stock trading.

What Is a Falling Three Methods Pattern & How to Identify These Patterns?

Falling three methods patterns are made up of five candlesticks. This pattern is a little bit of a bigger pattern in the small candlesticks patterns.

The first candlestick in the falling three is a long bearish candlestick. This candle is a part of the trend (register for free and take our stock trading courses and we'll show you how to read the market).

Next there are three consecutive candles. These should be smaller bullish candlesticks. These candlesticks should trade below the high of the first bearish candlestick.

Then the last candlestick is another big bearish one. This is the continuation of the bearish trend. Hence price should continue to move down with falling three methods patterns.

Those three bearish candles are consolidation candles. It's important to see where price is in regards to moving average lines. This usually predicts when the consolidation and the 3 moves up occur before price continues downward.

Falling three methods patterns shows that tug of between bulls and bears. The bulls tried to take over and couldn't. Hence the price continuing down (bookmark our penny stocks list and stock watch lists pages, which are updated daily).

falling three methods patterns

1. Falling Three Methods Patterns Technicals

Patterns are an important part of trading. There are big ones, medium ones and small ones. The large ones can consist of descending triangle patterns. The medium patterns may consist of bull pennants or falling three methods patterns. Then you get into the smaller patterns.

The small patterns are two or three candlestick patterns as well as falling three method patterns which consist of five candles.

Each pattern can tell a different story. It's up to you to decide how you're going to trade the patterns. If you're using day trading strategies that work you may focus more on the smaller candlesticks patterns.

You must be aware of the larger ones though as patterns break down all the time. In fact, bullish and bearish patterns form within each other all the time. One side is going to win and it may not be the side you're hoping for.

You can avoid placing bad trades if you can see the different patterns forming whether large or small.

Falling Three Methods Pattern

XEL was in a bearish trend when the falling three methods patterns occurred. The first candle was a bearish one a part of the strong trend in place. The next three where bullish candles. The last one was a doji candle. The last candle was a bearish one and price continued down for quite awhile. Read our post on doji candlesticks to learn what that candle is trying to tell you.

2. Technical Analysis

Getting confirmation of a move is pretty important. Expecting a stock to go a certain way because a certain pattern formed isn't always going to work. Sure you may make some successful trades employing that method but you have a greater risk of failure.

Candlesticks like falling three methods patterns form key support and resistance areas. In fact, these areas are something that traders pay close attention to. For a falling three you'd want to make sure price didn't form that pattern at support.

You want room for it to continue downwards. Therefore you need to be able to map out support levels. Moving average lines can also be used for support and resistance as well as buy and sell signals.

RSI (relative strength index) tells you if a stock is overbought or oversold. Any stock that is at one of those two extremes is going to correct. The moving average lines also create equilibrium for a stock.

If price moves away from those lines, it's going to gravitate back to them. You can play those moves as well.

We teach how to trade falling three methods patterns on our live daily streams. Check out our trading service to learn more.

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Falling 3

Apple began a downtrend when the moving average lines crossed forming a bearish signal. Price moved away from the moving average lines so when consolidation happened during the falling three methods patterns formation, it moved back to the moving averages. Price fell but it's no coincidence that when price hit the 200 SMA the bulls came back in and did not let price continue to fall. Read our post on the simple moving average formula.

How to Trade

Falling 3 methods patterns are bearish continuation patterns. Make sure that this pattern doesn't form at support levels. If it does price could then move back up. Look at the other patterns forming the chart for the stock you're interested in.

Are there other patterns that could affect the way price will move? What are the moving average lines doing and where is price in relation to them? All these questions are good questions to ask yourself when you're considering a trade. Take our free trading courses.