Falling and Rising Three Methods: How to Enter and Exit the Market

The falling three methods and rising three methods can provide traders with a unique opportunity to get back into a missed trend. 

Generally, the prices of any given asset — including cryptocurrencies — don’t move in a straight line. However, there are up and down swings that give traders a second chance to reenter the market.

In this article, we’ve broken down how to enter and exit the market using the falling three methods and rising three methods. In addition, we offer a few real sample cases to better manage this trade continuation pattern. 

What Are the Falling and Rising Three Methods?

The falling three methods is a bearish trend continuation pattern that develops within a bearish trend and indicates an extension to the current trend. It is a candlestick pattern, made up of five candles where the first and last candles are bearish, moving in the direction of the prevailing trend. After the first bearish candle, the second through fourth candles indicate corrective momentum. Then, the fifth candle becomes bearish again and completes the continuation pattern.

Similarly, the rising three methods is a bullish continuation pattern that develops within a bullish trend. The rising three methods pattern is the opposite of the falling three methods pattern. In it, the first and last candles are bullish. Once the candlestick formation is completed, the price will likely follow the prevailing bullish trend until a significant reversal scenario appears.

Both the falling and rising three methods are trend continuation patterns, similar to a basic flag pattern or pennant pattern that shows a consolidation before the prevailing trend resumes.

Why Are the Falling and Rising Three Methods Useful?

Traders can take advantage of trend continuation chart patterns when the prices move within a trend. In any trading strategy, trading with the trend provides a higher probability of success. One of the basic characteristics of a trend is that prices follow an impulse-correction pattern. This concept perfectly matches the rising three methods and falling three methods.

An impulse price movement occurs when the price makes a sharp movement, indicating strong momentum. After an impulse movement, a correction happens where the price barely makes new highs or lows. An impulse price movement usually appears after a correction, indicating that the trend is likely to continue.

The falling three methods and rising three methods show the same impulse-correction pattern that helps traders identify upcoming price movements. 

The image below outlines the price relationship between the rising three methods pattern and the impulse-correction pattern.

The first candle is a strong bullish one, which is an impulse price movement because of the long green candle. After that, a correction happens with small bearish candles. When the correction is over, the final candle is a bullish one, indicating that the prevailing uptrend is ready to resume. 

The falling three and rising three methods are very effective, as they perfectly match the basic characteristics of a trend. Even though it can often be difficult to find the exact price formation, the success rate will be higher for this candlestick pattern — especially if the market trend is stronger.

Identifying the Falling Three Methods and Rising Three Methods

Here’s how to recognize the falling three methods and rising three methods patterns on candlestick charts.

Falling Three Methods

The falling three methods pattern combines at least five candlesticks: two bearish candlesticks and three bullish candlesticks.

More specifically, the pattern is: one bearish and at least three bullish candlesticks, followed by a final bearish candlestick. 

The falling three methods pattern needs to satisfy the following price characteristics, as shown in the image below:

• The first candle should be bearish, with a large real body and a short tail.
• The first candle will be followed by three or more bullish, or green, candles. The bodies of these bullish candles should be smaller than that of the first candle, and they should not break the high of the first candle.
• The last short candle should be followed by a strong bearish or red candle, which completes the pattern. The last candle should close below the first candle’s low and its body should be as solid as the first candle’s.

Rising Three Methods

The rising three methods pattern is also a combination of at least five candlesticks, with two bullish and three (or more) bearish candles, as shown in the image below.

More specifically, the first bullish candle is followed by at least three bearish candles, and the final bar is a bullish candlestick.

The rising three methods pattern needs to satisfy the following price characteristics:

• The first candle should be bullish, with a large real body and a short tail.
• The first candle will be followed by three or more bearish, or red, candles. The bodies of these bearish candles should be smaller than that of the first candle, and they should not break the bottom of the first candle.
• The last short candle should be followed by a strong bullish or green candle, which completes the pattern. The last candle should close above the top of the first candle, and its body should be as solid as the first candle’s.

How to Trade with Falling and Rising Three Methods 

In the above section, we’ve seen how to identify the falling and rising three methods patterns in crypto trading. However, using these methods blindly is not recommended with any cryptocurrency. 

When we talk about financial trading, we need to follow certain rules. Once the conditions of all of these rules are satisfied, we can make the trade. Therefore, making trades based on the falling and rising three methods is a systematic approach that includes both trade and risk management.

The image below highlights where the entry order is triggered:

The above image shows a rising three methods pattern that usually appears within a bullish trend. Therefore, we intend to make buy trades only. Traders can open a buy position when the last bar of this pattern closes. 

Another approach is to open a buy position when the price moves above the high of the final candle. In any case, traders should closely monitor the last candle, and the pattern is valid once the last candle has closed.

Stop Loss for Entry and Exit Points

In a rising three methods pattern, the last candle is very important, as it defines the trend continuation after a correction. Therefore, the price is likely to move higher as long as it’s trading within the body of the last candle. If the price moves below the first candle’s low, the trend continuation pattern is invalidated. 

Therefore, the aggressive approach is to set the stop loss below the final bullish candle, and the conservative approach is to set the stop loss below the first candle’s low. In both cases, traders should use some buffer.

The same rule applies to the falling three methods pattern, where the aggressive stop loss is above the fifth candle, and the conservative stop loss should be above the candle.

Determining the Take Profit Levels

After opening the trade, traders should wait for a reason to get out of the market. With a rising three methods pattern, the primary anticipation is to hold the trade until a major resistance level appears. In that case, traders should find important price barriers in the higher time frame to increase their success rate. Besides, in intraday trading, traders should remain cautious about the long-term market trends.

Similarly, with the falling three methods pattern, traders should get out of the market when the price reaches any significant support level.

Risk Management

The cryptocurrency market is highly volatile as compared to the traditional stock and forex markets. Therefore, traders need to keep in mind that anything can happen after opening a trade. 

The most important risk management rule is to use proper position sizing. Calculate how much you’re willing to lose on any particular trade setup. Even if the trading setup is strong, it’s unwise to use more than 2%–5% risk per trade. 

Lastly, after making the trade, managing the risk is important. Move the stop loss at breakeven as soon as the price reaches a 1:1 risk-to-reward to make the trade risk-free.

Example

In this section, we’ll see how to trade using the falling three methods and rising three methods in the cryptocurrency market. 

Trading With Falling Three Methods

The falling three method pattern can be used in a bearish market. Therefore, before opening a trade, traders should identify that the overall market trend is bearish.

The above image shows what a downward market looks like. The price makes a series of lower highs followed by a series of lower lows, indicating that the overall market trend is bearish. The primary approach is to find a market like this where traders should only focus on selling opportunities.

Here’s how the falling three methods appear in the bearish trend:

The above image shows a BTCUSD 15-minute chart where the overall market direction is bearish. The price tries to move above the 47,000 level, but fails and closes with a strong bearish candle, which is the first candle in this pattern. Later on, several corrective candles appear and the sixth candle closes with strong bearish pressure. Therefore, a trade opens from the sixth candle’s low, where the stop loss has been set above the first candle’s high.

The price begins to lower as soon as it breaks below the sixth candle’s low, reaching the 45,400 support level with less than a 1:3 risk-to-reward.

Trading With Rising Three Methods

The rising three method pattern applies to the bullish market only. Therefore, traders should confirm the overall market trend to be bullish before opening a buy trade.

The above image shows what a bullish market looks like. The price makes a new high within every bullish swing. The primary approach is to find the lower high level from which buyers may regain the momentum.

Here’s how the rising three methods appear in a bullish trend:

The above image is of a BTCUSD 15-minute chart in which the overall market direction is bullish. The price makes a bottom at 44,000 and closes with a strong bullish candle, the first candle in this pattern. Later on, three bearish candles appear, and the final candle in the pattern closes with strong bullish pressure. Therefore, a trade opens from the final candle’s high, where the stop loss has been set above the first candle’s low.

The price starts to rise when it breaks the sixth candle’s high and reaches the 46,700 resistance level with less than a 1:3 risk-to-reward.

Indicators to Use With Rising and Falling Three Methods

Both the rising and falling three methods are applicable to any financial trading instruments and in any time frame. Moreover, traders can increase the probability of success by using additional indicators, such as moving average and MACD.

Moving Average

Moving average shows the average price of the last number of candles. Therefore, if the price is above the moving average, we can consider the market trend as bullish. In that case, any rising and falling three methods from the dynamic moving average may show highly probable trades.

The above image shows how a rising three methods pattern forms with rejection from the dynamic 20 EMA. 

MACD

Let’s see how to combine the falling three methods pattern with a bearish MACD histogram:

The above image shows a falling three methods pattern forming at the resistance level, while the MACD histogram is below zero.

The Bottom Line

The falling and rising three methods patterns are effective with any crypto-asset, but you have to conduct your own research to get the maximum benefit from this system. Moreover, although this strategy is effective in both bullish and bearish trends, it’s not wise to focus heavily on a single pattern. Instead, the best approach is to identify the overall market direction and match this pattern with the support of other candlesticks.