Definition
The Rising Three Methods is a bullish continuation candlestick pattern consisting of five candles. It is identified by a long bullish candle, followed by three small-bodied bearish candles contained within the range of the first candle, and concluded by a bullish candle that closes above the first candle’s high.
The Rising Three Methods pattern signals that the market’s bullish momentum is likely to continue after a brief consolidation period. As a trader, this pattern can provide useful insights into potential buying opportunities within an ongoing uptrend.
How to identify the rising three methods candlestick pattern?
Identifying the Rising Three Methods pattern requires keen observation. Here are the points to spot this pattern on a chart:
- Uptrend: The pattern appears during an ongoing uptrend. Look for a steady series of rising candles indicating a bullish market.
- First Candle: The first candle in the pattern is a strong bullish candle with a long body, indicating strong buying pressure.
- Middle Candles: Following the first candle, there should be three smaller bearish candles. Importantly, each of these candles should remain within the range of the first candle, indicating a period of consolidation or mild selling pressure.
- Fifth Candle: The pattern concludes with a bullish candle that closes above the high of the first candle, confirming the continuation of the uptrend.
- Volume: Typically, volume drops during the formation of the three smaller candles and increases with the formation of the final bullish candle.
Significance
The Rising Three Methods pattern signifies a bullish continuation in the market. Its formation indicates that despite minor interruptions or consolidations in the form of smaller bearish candles, the overall upward trend remains intact and strong. It suggests that the bullish sentiment is prevailing and that traders are taking advantage of minor sell-offs or profit-taking to accumulate more, further propelling the uptrend.
This pattern is taken as a strong indication to continue with long positions or initiate new ones, as it suggests that the buyers are still in control and that the uptrend is likely to continue.
Activity of traders behind the chart
When the Rising Three Methods pattern is forming, it often signifies a strategic play by the large or institutional traders. Here’s what typically happens:
- First Long White Candle: Big traders may be pushing the price up, creating a strong bullish momentum. This is often a continuation of an existing uptrend.
- Group of Small Candles: At this point, some institutional traders may be taking profits, causing the price to stall and consolidate. Other large traders could be using this opportunity to accumulate more at a slightly lower price, effectively “buying the dip.” These activities result in a small string of bearish candles.
- Second Long White Candle: The big players return to buying, confirming their bullish outlook on the market. This action propels the price higher than the first long white candle’s close.
Confirmation tools to identify high probability rising three methods pattern
For enhancing the reliability of the Rising Three Methods pattern, consider these confirmation tools:
| Confirmation Tool | Description |
|---|---|
| Key Level | The pattern forming near support levels (in an uptrend) can enhance its validity. |
| High Volume | A significant increase in volume on the formation of the two long white candles can validate the strength of the pattern. |
| Trend Confirmation | The presence of a clear uptrend prior to the pattern is critical for its confirmation. |
| Break of High After Formation | The pattern is confirmed when the price breaks above the high of the second long white candle. |
Important parameters
Best Timeframe: The Rising Three Methods pattern is significant on all timeframes. However, it tends to provide more reliable signals on daily, weekly or monthly charts due to larger market participation.
Trading Session: This pattern can form in any trading session. The key is to look for it in an existing uptrend regardless of the session.
Winning Ratio: Like any trading pattern, the Rising Three Methods doesn’t guarantee success every time. A rough estimate might be a winning ratio of around 60-65%.
Trading Strategy
- Entry: Wait for the Rising Three Methods pattern to form within an existing uptrend. Confirm this pattern with a bullish candle closing higher than the first long bullish candle in the pattern. Further confirmation can be sought through other indicators or patterns such as a bounce from a key support level, or a positive divergence in an oscillator like the RSI.
- Stop Loss: Place a stop loss slightly below the low of the first long bullish candle in the pattern. This low acts as the support level for this pattern, and a break below it can invalidate the pattern.
- Take Profit: The primary target can be set at a resistance level above the entry point or calculated by measuring the height of the previous uptrend (before the pattern) and projecting that distance from the entry point.
Conclusion
The Rising Three Methods is a bullish continuation pattern that can be a potent signal in the right context. Like all candlestick patterns, it should be used in conjunction with other technical tools for confirmation. It provides traders with specific points for entry, stop loss, and take profit levels, thereby promoting disciplined trading. Keep in mind, the key to successful trading lies in proper risk management.
