Understanding the Falling Three Methods

What is the Falling Three Methods?

The Falling Three Methods is a bearish continuation pattern that signifies a pause in a downtrend before it resumes. It consists of a long bearish candlestick followed by three smaller candlesticks (either bullish or bearish) that move within the range of the first candlestick, and a final long bearish candlestick that closes below the low of the first candlestick. This pattern suggests that the downward momentum is likely to continue.

How is the Falling Three Methods Identified?

The Falling Three Methods pattern is identified by:

1. Long Bearish Candle: A strong bearish candlestick indicating the beginning of the downtrend.
2. Three Smaller Candles: Three candles (bullish or bearish) that form a consolidation phase within the range of the initial bearish candle.
3. Final Bearish Candle: A long bearish candlestick that closes below the low of the first candle, confirming the continuation of the trend.

When to Use the Falling Three Methods

The Falling Three Methods pattern is used to:

• Predict Continuation: Identify continuation of an existing downtrend.
• Assess Market Strength: Gauge whether the downward momentum is likely to persist.
• Plan Entries: Consider entering a trade when the pattern confirms the trend continuation.

Formula Example

To identify the Falling Three Methods pattern:

1. Initial Bearish Candle: Look for a strong bearish candlestick.
2. Three Smaller Candles: Check for three smaller candles that stay within the range of the initial bearish candle.
3. Confirming Bearish Candle: Ensure the final candlestick closes below the low of the first candle.

For example:

• Bearish Scenario: After a strong bearish candle, three smaller candles form a consolidation phase within its range. If the final candlestick closes below the low of the initial bearish candle, the pattern suggests a continuation of the downtrend.

Parameters

The parameters for identifying the Falling Three Methods pattern include:

• Data: Defines the type of data to use for the pattern.

  • Value: ohlc
  • Description: The pattern uses Open, High, Low, and Close prices.

• Previous N Candles: Number of preceding candles to check.

  • Default Value: 1
  • Min Value: 1
  • Max Value: 300
  • Description: Checks for the Falling Three Methods pattern in the last N candles.

Conclusion

The Falling Three Methods candlestick pattern is a valuable tool for identifying continuation phases in a downtrend. By observing the pattern's formation and its relation to the previous candles, traders can make informed decisions about the potential continuation of the bearish trend.