Falling Three Methods – Definition

Cite this article as:"Falling Three Methods – Definition," in The Business Professor, updated July 30, 2019, last accessed October 20, 2020, https://thebusinessprofessor.com/lesson/falling-three-methods-definition/.


Falling Three Methods Definition

The Falling Three Methods refers to a set of behaviors or patterns (candlestick patterns) that indicate the tendency of a current downtrend in the market to continue. It is a feature of the bearish market that pass across lots of messages to investors about the condition on the market. Usually, some market patterns can be described as the falling three methods is they show the characteristics;

  • The initial candlestick occupies a definite downtrend, the candlestick can be black or red but it is always long.
  • Underneath the high of the first candlestick lie three ascending small candlesticks.
  • When sellers get back on track or gain market direction, the first long and black candlestick develops a new low.

A Little More on What is the Falling Three Methods

The Falling Three Methods is the candlestick pattern method to portray the continuation of a downtrend. It is a bearish pattern that indicates that the bull is not yet strong enough to overpower the current downtrend in the market.

The continuation of a current downtrend that is predicted also experience a consolidation. Consolidation period that takes place before the downtrend continues is symbolized by the three small-bodied candlesticks. There is no rigid law stipulating what the color of the candlesticks should be, but the ideal color is white or green.

Trading the Falling Three Methods

In the bearish market, the falling three methods has an entry level, it is an indicator that investors should add to their existing short-positions. It also sends a signal to investors who do not have short-position in the market to initiate one. Usually, traditional investors always seek confirmation for the pattern before they decide to enter a position and what strategy to deploy.

Through the fall three methods, traders in the bearish market can find out whether a downtrend will continue and for how long it will be. The charts provided by market patterns is also helpful in determining whether a trader would add to the short positions taken or initiate a new one.

The Falling Three Methods do not only serve the purpose of market indicators, many traders place risk-hedging orders through the methods. Simply put, the fall the methods provide an effective risk management strategy for investors. Investors can place stop-loss orders to hedge against potential risk in the market. Although, many traders place a stop above the third candlestick, some aggressive traders go above the fifth candle.

References for “Falling Three Methods”

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