The rising three and the falling three method are both continuation patterns. Even if many times
they are introduced together with other triple candlestick patterns,
they are composed of five candles.
The number three in their names refers to the market phases that this pattern shows.
Let's start with the rising three method.
The first phase is composed of a long green candle that confirms the uptrend. Then we have three falling
or lateral candles that hold within the long green candle's
high-low range.
Ideally we have three red candles
with a small real body and small shadows but it is still acceptable if one of these candles is green
with a small real body or a doji.
This second phase is showing a period of rest from the battle between buyers and sellers.
Usually traders say that this is a consolidation phase after a strong trend. Last phase shows a strong
green candle that closes above the closing price of the first candle.
This means that the market is forming a new high and the uptrend is still there.
What about the falling three method?
Well, it's just the bearish counterpart of the rising three method.
So this time we will see this pattern during a downtrend. Analyzing again the three phases, we have a
first phase with a long red candle that confirms the downtrend.
Then we have three rising or lateral candles that move inside the high-low range of the first
candle.
Once again the ideal situation is to have three small green candles.
But it is fine if one of this candle is a doji
or a red
candle with a small real body.
This second phase is a consolidation of the market.
Sellers are not pushing the price any further and buyers don't seem to have the power to react.
You can also expect that the trading volume during this period is very low.
It's like that sellers and buyers are playing a chess game and they are both thinking about their next
move.
At the end, we have a long red candle that closes below the closing price of the first candle.
The market has a new low and the downtrend is still on.
This chart shows pound against dollar 4-hour is the time frame.
This is a perfect example of a falling three method.
We can see that the first candle confirms the downtrend.
Then we have three small candles within the range of the first candle.
This shows that what buyers achieved in three sessions is less than what sellers achieved with just one
session,
that is the first candle. Last candle of this pattern shows that sellers are again on the market, pushing
the price down.
So the downtrend continues.