Three Methods

The Rising Three Methods and the Falling Three Methods are continuation patterns. During a trend, after a sharp acceleration, there often are consolidation zones that let prices catch their breath.

Theses consolidation zones can consist of several short Japanese candlesticks that go against the trend.

These patterns are significant over all time units and are equivalent to flags and pennants in western technical analysis.

The characteristics of the Rising Three Methods are as follows:

• This pattern must appear during an uptrend.

• It starts with a long green candlestick.

• The 1st candlestick is followed by several short-bodied candlesticks that follow the trend. There should ideally be 3 red candlesticks but the pattern is also acceptable if there only are 2 or more than 3.

• The consolidation candlesticks should ideally be red but what really matters is that they remain within the limits of the 1st long white candlestick.

• The last element of the pattern is a long green candlestick that should ideally open above the previous close and close above the close of the 1st long green candlestick.

On this chart, the trend is bullish, prices rise sharply at €21.5 before slightly flowing back down during the next three sessions. This move is not a real fall but a mere consolidation, a pause in the rise in order to catch some breath. Since prices are falling, some stakeholders are going to believe a reversal is about to happen and they will launch short positions. During the 2nd long green candlestick, prices open slightly gap up and they rise up again very quickly, the sessions of fallings are all corrected in no time which shows that the trend remains bullish. At the end of the session, quotations stop above the close of the 1st green candlestick. The day after, the bears are taken aback and their orders are stopped which causes a gap and extends the rise.

Long positions can be initiated when the pattern is confirmed at the next opening. The invalidation stop can be placed below the lowest point of the range that is formed by the pattern.

During the two long green candlesticks, volumes are usually strong and they are weak during consolidation sessions. This argument emphasizes even more the buying pressure. 

The Rising Three Methods is an uncommon pattern and it is important to understand what it involves rather than looking for a perfect realisation of it in prices. What truly matters is to see on which side the main force of the move is. It will always follow the main trend, thus generating long candlesticks and strong volumes following the trend and weak volumes and uncoordinated short-bodied candlesticks against the trend.

On this chart, there is no true Rising Three Methods but we can interpret ties meaning in the same way. The green candlesticks are long and the consolidation candlesticks are short-bodied and prices always go up before closing which shows in the form of many buying shadows. During consolidation, all lows are used by stakeholders to take higher positions which triggers a new rise.

The bearish equivalent to this pattern is the Falling Three Methods in which prices consolidate in a downtrend after a bearish acceleration. It can be interpreted in the same way as the Rising Three Methods and the invalidation stop will then be placed right above the range created by the pattern.