Rising Three Methods

The rising three methods candlestick pattern is an extremely rare bullish continuation Japanese candlestick pattern with at least four bars that is likely best traded using bullish strategies.

I said likely, as there’s not enough daily data to determine the best trading strategy with statistical significance; however, the initial results are promising.

Candlestick chartists should keep reading to learn what the data hints at being the best rising three methods candlestick pattern.

What Is a Rising Three Methods Candlestick Pattern?

Rising Three Methods Candlestick Pattern Illustration © Analyzing Alpha
Rising Three Methods Candlestick Pattern Illustration

The rising three methods is a super-rare multiple-bar candle pattern that likely signals a bullish continuation.

The rising three methods’ name comes from the short middle candles representing a short-term retracement in a longer-term uptrend.

But before we learn how to potentially trade this five-plus-bars pattern, let’s cover how to identify it.

How to Identify the Rising Three Methods Candlestick Pattern

Rising Three Methods Candlestick Pattern on the October 14th, 2009 daily chart
Rising Three Methods Candlestick Pattern on the October 14th, 2009 daily chart

The following are the requirements for a valid rising three methods candlestick pattern:

  • The first candle must be bullish and long.
  • A group of two or more falling small-bodied candlesticks that hold within the first candle’s range.
  • A final bearish candle that opens above the previous small candle’s close and closes above the first candle’s close.
  • The rising three methods must occur during an uptrend.

The rising three methods pattern must have at least four candlesticks. Most instances have at least five candlesticks, but it can have many more as long as the falling candles stay within the first candle’s range.

We see the rising three methods pattern on the Netflix (NFLX) October 10th, 2009 daily chart.

The price is in a bullish trend as the last bullish candle is below the fifty-day moving average. The first candlestick is long and bullish. The next three candlesticks are small, falling, bearish candles staying within the first bullish candle’s range. The fifth candle opens above the previous candle’s close and closes above the first candle’s close, fulfilling our rising three methods pattern requirements. 

Now that we know how to identify this rare rising three methods pattern, how do we profit from this supposed bullish continuation pattern?

How to Trade the Rising Three Methods Candlestick Pattern

The rising three methods candlestick pattern should be traded as intended. Data-driven traders will want to avoid this pattern due to the inability to determine the best rising three methods trading strategy with statistical significance due to a lack of daily data.

The data hints at using a bullish mean reverting strategy in the stock market, which is likely a safe bet due to the market’s upward bias.

But before we learn the likely best rising three methods stock trading strategy, let’s learn how traditional traders go long using this pattern.

Rising Three Methods Bullish Continuation Trade Setup

Rising Three Methods Bullish Continuation Trade Setup on the Bitcoin (BTCGBP) August 13th, 2021 daily chart
Rising Three Methods Bullish Continuation Trade Setup on the Bitcoin (BTCGBP) August 13th, 2021 daily chart

Let’s practice identifying the rising three methods pattern.

The price is in a bullish trend moving well above the fifty-day moving average. We have a large first bullish candle, three consecutive falling red bearish candlesticks, and a large green bullish candlestick opening above the previous candle’s close and closing higher than the first candle’s close, fulfilling the pattern requirements.

With the rising three methods identified, traditional traders enter long at a break of the final candle’s high and set a stop loss below the first candle’s low.

Traders using this strategy trading the Bitcoin (BTCGBP) daily chart on August 13th, 2021, stacked their satoshis and exited profitably on September 5th for a 2529.54 gain.

And while this trader made money, the historical data suggests a mean reversion trading strategy, while even rarer, may be best.

Rising Three Methods Bullish Mean Reversion Trade Setup

Rising Three Methods Bullish Mean Reversion Setup on the Electronic Arts (EA) May 4th, 2009 daily chart
Rising Three Methods Bullish Mean Reversion Setup on the Electronic Arts (EA) May 4th, 2009 daily chart

With the pattern identified, savvy data-driven stock traders wait for the price to cross below the pattern’s low and enter long when the price moves back above that low, setting a stop loss of one ATR.

We’ll use the Electronic Arts (EA) May 4th, 2009, daily chart to understand the game.

The pattern low occurs on May 1st at $19.49. The price crosses below the low on May 7th, alerting traders to be ready. The next day’s price opens above our low, causing an immediate entry of $19.55. Thes professional traders exited on May 15th with handsome trading profits.

Regarding profits, what can history tell us about the likely best rising three methods candlestick trading strategies?

Does the Rising Three Methods Candlestick Pattern Work? (Backtest Results)

I backtested the falling three methods candlestick pattern on the daily timeframe in the crypto, forex, and stock markets using the following rules:

  • A close above the 50-day SMA constitutes an uptrend.
  • I tested risk-reward ranges from 1 to 5. 
  • The optimal risk-reward ratio is selected using profit per bar.
  • Entry and exits are discussed in the how-to trade section above.
  • Confirmation must occur within three days of the pattern signal.

Similar Candlestick Patterns

Multiple candlestick patterns are often confused with the rising three methods pattern.

Falling Three Methods vs. Rising Three Methods

Falling Three Methods Candlestick Pattern Illustration © Analyzing Alpha
Falling Three Methods Candlestick Pattern Illustration

The falling three methods candlestick pattern is the downward opposite of its rising relative. The falling three methods occur in a downtrend, the first candle is long and black, the next few are descending short candles that hold within the first candle’s range, and the final candle is bullish and closes below the previous candle’s close and closes below the first candle’s close.

Both of these patterns are extremely rare and lead to short-term volatility.

Upside Gap Three Methods vs. Rising Three Methods

Upside Gap Three Methods Candlestick Pattern Illustration © Analyzing Alpha
Upside Gap Three Methods Candlestick Pattern Illustration

The upside gap three methods candlestick pattern is a three-bar bullish continuation pattern. The pattern has a long bullish candle, followed by a gap up into another bullish candle, followed by a third bearish candle that opens within the prior real body and closes within the first candlestick’s real body.

As opposed to the falling three methods have at least four candles and do not require a gap.

The Bottom Line

The rising three methods is an extremely-rare three-bar bullish continuation pattern that’s best traded using a bullish mean reversion strategy in the stock market according to a 21-year backtest.

Traditional traders believe this pattern continues the bullish price trend, but data-driven traders understand the pattern suggests near-term volatility.

Smart traders looking for upwards moves should review the best bullish continuation candlestick patterns.

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