How to Trade the Falling Three Methods Candlestick Pattern

Market trends don’t always move in a straight line. Sometimes, a downtrend pauses before continuing lower. The pattern of falling three methods signals a brief pullback before the selling pressure resumes. This candlestick pattern is formed when the first candlestick in the pattern is a long bearish candlestick, followed by three short bullish candlesticks, and then a final bearish continuation confirming the trend continuation.

Knowing how to recognize this pattern can help traders avoid mistaking a temporary retracement for a full reversal. This guide explains how the falling three-candlestick pattern occurs, what it tells traders about market sentiment, and how to use it effectively in trading strategies.

The pattern of falling three methods is a bearish candlestick continuation pattern that forms during a bearish trend. It consists of five candles:

• The first large and bearish candle shows strong downside momentum.
• The next three candlesticks are smaller bullish candles that stay within the range of the first bearish candlestick.
• The third candlestick is a bearish one that closes below the low of the first candlestick, confirming the pattern.

This pattern suggests that, although buyers attempted to push the price higher, they lacked the strength to reverse the trend. The final bearish pattern confirms that sellers remain in control.

Key Characteristics:

• Appears to be a bearish trend, signaling that selling pressure is still strong.
• The initial bearish candlestick sets the tone for the pattern.
• A formation of the three consecutive small bullish candlesticks acts as a controlled retracement.
• The fifth and final candlestick is a strong bearish move, closing below the close of the previous candlestick.
• Confirms that sellers have regained control after a brief pause.

The Falling Three Methods candlestick pattern is illustrated below.

• Forms during a downtrend, signaling trend continuation.

• Starts with a large bearish candle, showing strong downside momentum.

• Followed by three small bullish candles, indicating a controlled pullback.

• Ends with a large bearish candle that confirms trend continuation.

• The bullish candles must stay within the range of the first candle.

This candlestick formation tells a story of temporary strength before sellers regain control. The first candlestick in the pattern forms strong selling momentum. The three small bullish candlesticks indicate that buyers are trying to push the price higher, but their efforts are weak.

The third candlestick is a bearish confirmation of the downtrend resuming. The small bullish candles represent a moment of hesitation but do not indicate a trend reversal. Instead, they show a period of consolidation before another move lower.

Market Conditions

The pattern of falling three methods shows up best in strong bearish trends. The small bullish candles act as a temporary pause, allowing sellers to reset before the next wave of selling pressure. If this pattern occurs near resistance levels, it strengthens the case for a continuation.

Volatility Considerations

In high-volatility markets, the small bullish candles may have larger price swings, but they should still remain within the range of the first bearish candlestick. In low-volatility environments, the pullback may be more controlled, indicating that the pattern is strong and reliable.

• Stop-loss placement: Above the body of the first candlestick to protect against false breakouts.
• Entry strategy: Traders often enter after the final bearish candlestick confirms trend continuation.
• Profit target: Use previous support levels or a risk-reward ratio (e.g., 2:1) to set an appropriate exit.

• This is followed by three small green candles closing above the height of the first candlestick. This invalidates the pattern.
• The final bearish candlestick fails to close below the low of the first candlestick: Without confirmation, the pattern loses reliability.
• Technical indicators or chart pattern to confirm show strong buying pressure after the pattern completes: If the price starts rising after the last bearish candlestick, the trend may not continue.

To trade the falling three patterns in a systematic approach:

• Identify a strong bearish trend before the candlestick pattern is formed.
• Detect a first bearish candlestick, followed by three short bullish candles staying within its range.
• Require confirmation: Enter short only if the final bearish candlestick closes below the low of the first candlestick.
• Set stop-loss above the body of the first candlestick.
• Understanding the falling three patterns requires technical analysis and trading strategies before using real capital.

Below is a simple AFL script to detect the Falling Three Methods in Amibroker:

// Falling Three Methods AFL Code for Amibroker

_SECTION_BEGIN(“Falling Three Methods”);

FirstBearish = Ref(Close, -4) < Ref(Open, -4);

ThreeSmallBullish = Ref(Close, -3) > Ref(Open, -3) AND Ref(Close, -2) > Ref(Open, -2) AND Ref(Close, -1) > Ref(Open, -1);

WithinRange = Ref(High, -3) < Ref(High, -4) AND Ref(Low, -3) > Ref(Low, -4) AND 

              Ref(High, -2) < Ref(High, -4) AND Ref(Low, -2) > Ref(Low, -4) AND 

              Ref(High, -1) < Ref(High, -4) AND Ref(Low, -1) > Ref(Low, -4);

FinalBearish = Close < Open AND Close < Ref(Low, -4);

FallingThreeMethods = FirstBearish AND ThreeSmallBullish AND WithinRange AND FinalBearish;

PlotShapes(IIf(FallingThreeMethods, shapeStar, shapeNone), colorRed, 0, High);

_SECTION_END();

This script finds Falling Three Methods patterns and marks them with a red star.

The falling three methods candlestick pattern is a bearish candlestick continuation pattern that signals a temporary pause in a bearish trend before it resumes. Traders use this pattern to signify a continuation and confirm trend strength before entering a short position. By recognizing the pattern of falling three methods alongside other triple candlestick patterns, traders can improve their trading success. Learning to use the pattern effectively with technical indicators or chart patterns can help identify high-probability trade setups.

Links to articles about other Candlestick Patterns

1. Doji
2. Hammer
3. Inverted Hammer
4. Bullish Engulfing
5. Bearish Engulfing
6. Morning Star
7. Evening Star
8. Shooting Star
9. Hanging Man
10. Piercing Pattern
11. Dark Cloud Cover
12. Three White Soldiers
13. Three Black Crows
14. Dragonfly Doji
15. Gravestone Doji
16. Spinning Top
17. Marubozu
18. Tweezer Top
19. Tweezer Bottom
20. Bullish Harami 
21. Bearish Harami
22. Rising Three Methods
23. Falling Three Methods
24. Bullish Abandoned Baby 
25. Bearish Abandoned Baby 
26. Bullish Kicker 
27. Bearish Kicker
28. Three Inside Up
29. Three Inside Down
30. Upside Gap Two Crows
31. Mat Hold
32. Upside Tasuki Gap
33. Downside Tasuki Gap