Falling Three Methods

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DEFINITION of 'Falling Three Methods'

A bearish candlestick pattern that is used to predict the continuation of the current downtrend. This pattern is formed when the candlesticks meet the following characteristics:

1. The first candle in the pattern is a long red candlestick within a defined downtrend.
2. A series of ascending small-bodied candlesticks that trade within the range of the first candlestick.
3. A long red candlestick creates a new low, which suggests that the sellers are back in control of the direction.

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INVESTOPEDIA EXPLAINS 'Falling Three Methods'

The series of small-bodied candlesticks are regarded as a period of consolidation before the downtrend is able to continue. This pattern is important, because it shows traders that buyers still do not have enough conviction to reverse the trend and it is used by some active traders as a signal to add to their short positions.

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RELATED FAQS
  1. How is the Falling Three Methods pattern interpret by analysts and traders?

    A falling three methods candlestick pattern occurs in charts showing a downward trend and can be an especially potent continuation ... Read Full Answer >>
  2. How effective is creating trade entries after spotting a Falling Three Methods pattern?

    The falling three methods candlestick pattern is less common than other bearish continuation patterns, such as the bearish ... Read Full Answer >>
  3. How do I build a profitable strategy when spotting a Falling Three Methods pattern?

    Because the falling three methods candlestick pattern is relatively rare, opportunities to trade on this signal may be few ... Read Full Answer >>
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