Falling Three Methods Pattern

• It is a five candlestick pattern observed during a bearish rally.
• This pattern indicates that bearishness would further continue in the market.

Traders Psychology:

• As there is a bearish rally in the market, the first candle in the pattern is a long red candle which indicates that bears are still aggressive.
• Few bears who went short in the bearish rally felt they should exit their position and hence, a small green candle is observed on the second day because of short covering.
• As soon as a green candle was observed, new bulls entered the market but they were unable to reach the first day high.
• Similarly, few more bulls entered the market on the fourth day too, but they were unable to reach the first day high, indicating that the bulls are not very aggressive.
• Moreover, the green candles are partly because of traders who initiated their short covering. So, not many new bulls entered the market in those three days. Also, they were unable to defeat the bears of one single day.
• This indicates that the sellers still have control over the market and those bears who were responsible for a huge bearish rally again started exercising their aggressiveness. As a result, a large red candle is formed on the fifth day, indicating further bearishness.

This type of pattern often acts as a trap and the bulls who want to enter the market should make sure that a long green candle, with its close greater than the first day high, should be formed. Only then there will be bullishness in the market. 

Rising Three Methods Pattern

• It is the opposite of the falling three methods pattern.
• It is a five candlestick pattern observed during a bullish rally.
• This pattern indicates that bullishness would further continue in the market.

Traders Psychology:

• As there is a bullish rally in the market, the first candle in the pattern is a long green candle which indicates that bulls are still aggressive.
• Few bulls who went long in the bullish rally felt they should exit their position and hence, a small red candle is observed on the second day because of long unwinding.
• As soon as a green candle was observed, new bears entered the market but they were unable to reach the first day low.
• Similarly, few more bears entered the market on the fourth day too, but they were unable to reach the first day low, indicating that the bears are not very aggressive.
• Moreover, the red candles are partly because of traders who initiated their long unwinding. So, not many new bears entered the market in those three days. Also, they were unable to defeat the bulls of one single day.
• This indicates that the buyers still have control over the market and those bulls who were responsible for a huge bullish rally again started exercising their aggressiveness. As a result, a large green candle is formed on the fifth day, indicating further bullishness.

This type of pattern often acts as a trap and the bears who want to enter the market should make sure that a long red candle, with its close lesser than the first day low, should be formed. Only then there will be bullishness in the market.