Since candlesticks are the basic building block of most technical analysis, the ability to recognize different candlestick patterns is a crucial trading skill.
First though, let’s start with a definition.
What Is a Rising Three Methods Pattern?
A rising three methods pattern is a 5-candlestick formation that may signal a bullish continuation. It may appear in an uptrend and is made up of a large bullish candlestick, three smaller bearish (or neutral) candles that never close below the first candle’s open, then another large bullish candle that closes above all previous candles.
It is the bullish version of the three methods pattern, making it the opposite of the falling three methods. It is also very similar to the bullish mat hold. Both include three small bearish candles sandwiched between two large bullish candles. These three smaller candles represent a short period of consolidation before the uptrend continues.
Of course, no candlestick pattern guarantees a particular outcome. Instead, they offer clues as to what is going on in the market.
So the question is, what does a three methods really tell you?
What Rising Three Methods Patterns Mean
Like many candlestick patterns, the name itself doesn’t reveal much.
And unlike some, English speakers do not use the Japanese name for it. The term “three methods” probably refers to how the pattern looks in some way. Yet we could not find any information about where the name comes from.
(If you know the true meaning, please leave it in the comments below).
In trading terms:
- During the first period, price continued the pre-existing uptrend.
- During the next three periods, price moved down but never closed lower than the first period’s open.
- During the fifth period, price resumed upward movement, and closed higher than any of the preceding four periods.
This sets the stage for continuation, as selling pressure appears too weak to turn things around.
How To Recognize Rising Three Methods Candlestick Patterns
Traders are attracted to patterns partly because they are easy to spot.
However, it’s also easy to see things on the charts that aren’t truly there (or anticipate events that never come to fruition). That’s one of the reasons why waiting for confirmation is so important.
Technically, a rising three methods pattern must:
- Appear during an uptrend
- Begin with a bullish long candle
- Have three consecutive bearish (or neutral) short candlesticks after the first candlestick that never close below the open of the first candlestick
- End with another bullish long candlestick that closes above the body and wicks of all preceding candlesticks in the pattern
In practicality though, many traders will make various exceptions.
- The first candle doesn’t necessarily have to be a long candle, as long as its body is longer than candles two, three, and four.
- The middle three candles don’t necessarily have to be short candles, as long as all of them are shorter than candle one.
- One or more of the middle candles can be bullish, as long as all of them close within the range of candle one.
- There can be more than three candles between the first and last candles, as long as none of the middle candles close outside the body of the first.
- The final candle doesn’t necessarily have to close above all of the wicks of the prior candles, as long it closes above their bodies.
Depending on who you ask, any of these standards may be more or less important. Moreover, some of these variations may be more properly classified as other continuation candlestick patterns, such as the bullish mat hold.
Remember, identifying the continuation itself is more important than labeling the formation. That’s not to say these standards are completely unimportant (as we’ll touch on shortly). It’s just to say that the implications are more important than the criteria.
In other words, you need to put it into context.
Where Rising Three Methods Fit in the Chart Narrative
The markets are often characterized as a battle between the bulls and the bears.
Rising three methods patterns show that the bulls attempted to press their advantage on candle one, stalled for the next three candles, before finally regaining control and pressing trend further by the end of the fifth candle.
On the chart, it looks like a one-sided beatdown.
It might happen like this on a daily time frame:
As expected, the first day saw yet another big drive higher within the overall bull market. For the next three days straight, sellers tried their best to fight back. They achieved some minimal gains but could not even reach the opening price of the first day. As the fifth day began, everyone knew what was coming. Sellers backed out while buyers piled in—leading to another massive upward move, pushing price far above all the action of the preceding four days.
From here, the bulls celebrate while the bears are left wondering whether this bull market will ever end.
In the short-term, it amounts to a near-knockout blow.
The question traders need to ask themselves is, “Is there any relief in sight or will the bulls continue to score win after win?”
To answer that question, you’ll need more than just an understanding of Japanese candlesticks and candlestick patterns. You’ll want to analyze both within the context of greater chart patterns as well as trend and price levels. You’ll also want to make use of your own chart markup and indicators.
Analyze the history of your preferred asset(s) with respect to three methods patterns and apply it to your own trading style.
Now, you can test (and/or stretch) the criteria we mentioned above to find the most tradeable opportunities. For example, you may find that rising three methods play out more reliably when the final candle is at least 25% longer than the first candle. Or, you may find something else entirely.
Here is where the story in the charts begins to come into focus.
This is what we call technical analysis.
How To Trade Rising Three Methods Patterns
Bullish continuation points are great places to add to your long position or move your stop loss up.
Rising three methods patterns serve as easy-to-spot signs of potential bullish continuation that may serve as a launch point for the next big leg up.
Generally, you can put more weight into multi-stick patterns than single candles. They give you more information over a longer amount of time. Still, it is considered unwise to trade based on candlestick patterns alone. They rarely have extremely high hit rates by themselves.
You need additional points of confluence to shift the probabilities in your favor.
Some of the more important ones include:
- Volume – For bullish continuation, you typically want to see low trading volume on bearish moves. That means low volume on the middle candles of a rising three methods may be a good omen.
- Price Formations – Bullish continuation patterns like the rising three methods tend to perform better when there is thin (or non-existent) resistance in their way. The further above and weaker the better.
- Matching Momentum – Oscillating indicators like the RSI or stochastics are commonly used to identify continuation by analyzing slope, percentile, and/or divergence.
The fewer such factors corroborating the continuation, the less confident you can be about it.
It would be difficult to form a comprehensive trading strategy around three methods patterns (whether bullish or bearish). There simply isn’t enough there to develop a strong edge. Even with a great understanding of trading math, orders, psychology, risk management, options, and automation, you’d still have a hard time.
You’re much better off building your strategy around other tools then using continuation patterns as an additional point of confirmation.
Patterns like the three methods are much better idea givers than trade makers.
Other Candlestick Pattern Types
The rising three methods is but one of many candlestick patterns.
You’d be wise to get familiar with all of the other ones too.
- Abandoned Baby – Bearish/Bullish
- Counterattack Line – Bearish/Bullish
- Doji Star – Evening/Morning
- Engulfing – Bearish/Bullish
- Harami – Bearish/Bullish
- Harami Cross – Bearish/Bullish
- In Neck – Bearish/Bullish
- Mat Hold – Bearish/Bullish
- On Neck – Bearish/Bullish
- Star – Bearish/Bullish
- Tasuki Gap – Downside/Upside
- Three Inside – Down/Up
- Three Outside – Down/Up
- Tweezer – Top/Bottom
- Window – Falling/Rising
Sure, there are quite a few of them. But don’t let that intimidate you.
It’s unnecessary to memorize all the names and criteria for every pattern. What’s more important is to learn the principles of price action and technical analysis.
In fact, you’re free to forget all of the names and specifications as long as you can look at a group of candlesticks and understand what they are trying to tell you.
Takeaways
To review:
Rising three methods are a type of candlestick pattern that signals a potential bullish continuation. While not a guarantee, their appearance may indicate that market conditions are going to remain the same. Thus, they can help you find winning trades.
Of course, there are other candlestick patterns that you should learn about. And even so, the ability to recognize patterns is not enough to trade successfully on its own.
Nonetheless, you’ve now added one more tool to your toolkit.
Have questions or more information to add? Contribute to the conversation in the comments below! Or, if you know someone who could benefit from this post, share it with them. You can also check out our Candlestick Patterns Guide to improve your candlestick analysis skills.