DEFINITION of 'Rising Three Methods'

The Rising Three Methods is a bullish candlestick pattern that is used to predict the continuation of the current uptrend. This pattern forms when the candlesticks meet the following characteristics:

1. The first bar of the pattern is a long white (or green) candlestick within a defined uptrend.

2. A series of three consecutive descending small-bodied black (or red) candlesticks that trade above the low of the first candlestick.

3. A long white candlestick creates a new high, which suggests the bulls are back in control of the market's direction.

Example of the Rising Three Methods

Image depicting an example the the Rising Three Methods pattern.

 

BREAKING DOWN 'Rising Three Methods'

The series of small-bodied candlesticks contained between the first and fifth candle in the Rising Three Methods pattern is regarded as a period of consolidation before the uptrend resumes. This pattern informs traders that sellers do not have enough conviction to reverse the trend and that buyers are regaining control of the market. Active traders may use the pattern as a signal to add to their long positions.

Similar chart formations that do not meet the exact characteristics of the pattern can still help traders identify good entry points in a trending market. For example, there may be four or five small-bodied candles, instead of three, within the pattern. The Rising Three Methods pattern is the opposite of the Falling Three Methods pattern.

Trading the Rising Three Methods Pattern

Entry: Traders can enter the market when the final bar in the pattern closes. Alternatively, a trade could be taken when price moves above the high of the final candle. Aggressive traders may look for an entry before the final bar closes but must be prepared to exit if the fifth bar fails to complete the pattern. 

Traders should make sure the Rising Three Methods pattern is not located beneath key resistance to ensure the uptrend has sufficient room to continue. For instance, a trendline or widely used moving average slightly above the pattern could limit further gains. Resistance levels should be checked on longer-term charts to increase the probability of a successful trade. The Rising Three Methods may be more effective if it forms above a whole number.

Risk Management: Aggressive traders could place a stop-loss order below the low of the final bar in the pattern or under the second small-bodied candle, depending on their risk tolerance. Traders who want to give their trade some room to move might place a stop order below the first long white candle, or under a recent swing low.

(To learn more, see: How are Rising Three Methods Patterns Interpreted by Analysts and Traders?)

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