In general, no crypto price will follow a simple trajectory. And the market’s ups and downs open up the opportunity to profit from buying and selling. But the key is to know when to buy and when to sell. And the falling and the rising three methods help you with that.
What are the rising and falling three methods?
Rising and falling three methods are five-candlestick chart patterns in technical analysis. Both of them are trend continuation patterns. They display a consolidation just before the dominant trend restarts.
In the falling three-method candlestick pattern, the first and final candles are bearish, indicating the continuation of a bearish trend. After the first candle closes on a low, the following three candles, though, seem to suggest that the market is correcting. But then the fifth candle brings the bears back on the scene, finishing the continuation pattern.
Like the rising wedge, the rising three methods are a bullish continuation pattern. In contrast with the falling three-method pattern, in the rising variation, the first and the final candles are bullish. The middle three are not. When this candlestick pattern appears, the price will likely continue rising—in line with the bullish trend.
Both patterns resemble a basic flag or pennant pattern.
The effectiveness of the rising and falling three methods
Trend continuation chart patterns like these allow traders to profit from a continuing price trend. With these charts, traders who follow the trend stand a better chance of making money.
These charts are based on the idea that impulse correction in pricing is one of the hallmarks of a trend. Let’s break that down a bit. You see, a sudden and dramatic shift in price is called an impulsive price movement. When an impulsive move ends, a correction (a price move in the other direction) usually follows. This resumption of a price trend is impulse correction. The falling and rising three methods price charts capture some of these impulse corrections.
In the face of volatility, finding the precise price composition is challenging. But at least when the market trend is powerful, these candlestick patterns can offer a decent chance of success.
Identifying rising and falling three methods
So, now you know what these patterns are and what they can do. But how do you use them? Here’s where we teach you how.
Some telltale signs that you’re dealing with a rising three method pattern are as follows.
- First, a long red candle appears, signaling a bearish move.
- Then a short-bodied second candle appears. It opens below the previous day’s low and closes above its midpoint. This candle stands for uncertainty or a shift in attitude.
- Three days later, a long white candle opens inside the preceding candle’s body and closes above the previous day’s high. This candle is bullish, indicating that the trend has turned.
When trying to spot the falling three methods pattern for crypto trading, keep an eye out for these signs:
- The pattern begins with a bullish long white candle.
- The second candle has a narrow body, which opens above the previous day’s high and closes lower than its midpoint. This candle suggests a lack of resolve or a shift in outlook.
- A long red candle, the third candle, then opens inside the preceding candle’s body and closes below the previous day’s low. This candle is bearish, signifying a trend reversal.
How to trade with rising and falling three methods
In the rising three methods, a trend’s persistence after a correction largely depends on the previous candle’s performance. When the price stays within the previous candle’s body for further bullish price movement, breaking below the first candle’s low will cancel the trend continuation pattern.
There are two ways to implement a stop-loss order when dealing with this pattern. Placing your stop loss below the last bullish candle may push your luck. A more cautious approach would be to place it under the first candle’s bottom. In either case, make sure you use a safety net like a buffer account.
This rule also applies to the falling three methods pattern. An impulsive stop loss will be above the highest point of the last bearish candle. But a more cautious approach would involve placing it above the first candle’s top. Again, a buffer account can help smooth market fluctuations in both cases.
It’s a good idea to HODL till the price reaches a significant resistance level while you use the rising three methods to trade crypto. Traders can also boost their chances of success by monitoring price barriers with larger time frames.
The same goes for the falling three methods pattern. It is advisable to leave the market whenever the price finds a main support level. Here, too, traders must watch out for significant price barriers using larger time frames and staying mindful of long-term patterns.
You can use the falling and rising three-method patterns to profit from any crypto asset, but you must be careful with the analysis. Also, it helps to figure out the broader market trend and then use other candlesticks to double-check the validity of your predictions.