As one of the popular trend continuation patterns, Falling Three Methods is the favorite signal of price action traders. In today’s article, I will introduce you to this special pattern. Along with that is how to effectively trade Forex when it occurs.
What is the Falling Three Methods pattern?
This pattern is a special Japanese candlestick pattern. It consists of 2 to 3 weak green bullish candles that fit neatly in 2 strong red bearish candles.
Its name means that before the price continues to drop sharply on the last candle, it usually recovers slightly, creating 3 slightly green bullish candles. This is a very effective trend continuation signal for you to consider opening a SELL order in a downtrend.
Structure and characteristics
The Falling Three Methods pattern has the following recognizable characteristics:
+ The first candle is strongly bearish and has a long body.
+ For the next 2 or 3 green candlesticks, they indicate an upward rebound of the price, but not beyond the first candle.
+ The last candle must drop sharply and go beyond the closing price of the first one.
+ If a gap appears between the 4th and 5th candles, the effectiveness of the pattern will become higher.
Psychological movements within the Falling Three Methods pattern
This pattern signals a continuation of the downtrend. It often occurs during downtrends. After a Falling Three Methods pattern appears, the market will often continue to lose points miserably.
When the market produces a strong bearish candle, some traders begin to take profits. The sellers temporarily give up the game to the buyers. However, prices go up at a slow rate. After 3 sessions, the increase is still not equal to the decrease in just one previous session, showing that the buying force is not strong enough.
Next, a very long bearish candle appears confirming the trend continuation. It creates confidence among those who are hesitant that prices will continue to fall. At the same time, it pours a bucket of cold water down on those who have just placed BUY orders in the previous 3 sessions.
How to trade Forex effectively with the Falling Three Methods pattern
Here, I will guide you on how to place orders effectively with this pattern in Forex. This is a signal of a continuation of the downtrend. Therefore, please focus on opening SELL orders when this pattern appears.
Open an order as follows:
+ Entry Point: As soon as the price completes the Falling Three Methods candlestick pattern.
+ Stop-Loss: At the opening price of the first candle in the pattern.
+ Take-Profit: When the price touches old support levels that have been formed in the past.
There will be many more advanced uses and effective Forex trading strategies when you know how to combine this pattern with other signals. Get familiar with this strategy on a Demo account today to check it out.