UK Accounting Glossary
The falling three methods is a bearish candlestick charting pattern that displays a short term interruption of a downtrend, but not a reversal — it’s a continuation pattern. A long black candlestick, followed by three consecutive short white (or mixed colour) candlesticks, followed by another long black candlestick that closes at a new low, characterizes the falling three methods. Some market technicians, but not all, also require that the fifth candle needs to open lower than the close of the previous day to complete a falling three methods pattern. The short candles in the falling three methods suggest uncertainty about the trend and a potential reversal to the upside. However, with the falling three methods, the short candles must remain within the high-low range of the first black candle, suggesting buyers lack the strength to push a security higher. The fifth black candle in the falling three methods shows that sellers have reasserted control and will continue the downtrend. Traders consider a falling three methods pattern to be a very reliable indicator. The bullish counterpart to the falling three methods is the rising three methods.
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This glossary post was last updated: 9th February 2020.