Falling Three Methods | RizeTrade

What is the Falling Three Methods Candlestick Pattern?

The Falling Three Methods is a bearish continuation candlestick pattern that appears during a downtrend. It indicates a temporary pause in selling pressure, followed by a strong continuation move lower.

This pattern typically consists of five candles:

1. A long bearish candle.

2. Three smaller bullish or neutral candles that move counter to the main trend, staying within the range of the first candle.

3. A final long bearish candle that closes below the first candle’s low, confirming continuation of the downtrend.

The pattern shows that although buyers attempted to push prices higher during the middle phase, sellers ultimately retained control — reaffirming the strength of the bearish trend.

🔑 Key Takeaways

 📉 The Falling Three Methods signals continuation of a prevailing downtrend.
 🧩 It consists of one large bearish candle, three small bullish candles, and a final strong bearish candle.
 🕯️ The three small candles reflect a temporary consolidation within the downtrend.
 ✅ Confirmation occurs when the fifth candle closes below the first candle’s low.
 📊 The pattern is most effective in strong downtrends, particularly near resistance or with volume confirmation.

🔍 How Reliable Is the Falling Three Methods Pattern?

The Falling Three Methods pattern is often used to confirm bearish trend continuation — but how consistently does it signal ongoing downside movement across markets?

🧪 Our Backtest Setup

Statement:
We tested the Falling Three Methods pattern using our Candlestick Pattern Performance Matrix to measure how effectively it forecasts sustained bearish momentum.

Evidence:

• 1,174 total instances of the Falling Three Methods pattern

• Tested across major indices, forex pairs, and tech stocks

• Timeframes: 4H, Daily, and Weekly

• Measured continuation strength and post-pattern trend extension

Insight:
This setup allowed us to observe how often the pattern leads to a meaningful follow-through rather than a short-term retracement, giving a clearer picture of its true continuation reliability.

📈 Backtest Results

Statement:
We compared the standalone pattern accuracy with performance when supported by trend or volume confirmation.

Evidence:

Insight:
The Falling Three Methods achieved solid consistency, improving by roughly 7 percentage points when paired with high-volume breakouts or trend confirmation tools like the EMA or MACD.
This reinforces its effectiveness as a bearish continuation signal, especially when market momentum and volume confirm the move.

Traders can refine entry precision by tracking trade outcomes and performance trends to evaluate how the Falling Three Methods pattern aligns with their broader bearish strategy framework.

📉 How to Trade the Bearish Falling Three Methods Pattern?

This continuation setup signals a brief pause in a downtrend before momentum resumes lower — showing that sellers still dominate despite short-term buying.

🔍 Entry

Confirm a strong downtrend, then spot the pattern sequence:
1️⃣ A long bearish candle (Candle 1),
2️⃣ Three smaller bullish or neutral candles (Candle 2–4) that stay within Candle 1’s range, and
3️⃣ A fifth bearish candle that closes below Candle 1’s low, confirming continuation of the downtrend.
Enter short when the fifth candle closes below Candle 1’s low, or on a breakout beneath the consolidation zone for early entries.

🛡️ Stop-Loss

Set your stop above the highest point of Candles 2–4, the short-term consolidation highs.
This provides protection while keeping the stop placement efficient against false pullbacks.

🎯 Target

Target the next major support level or project a measured move — equal to Candle 1’s height projected downward from the breakout.
Alternatively, use a 2:1 reward-to-risk ratio for consistency and controlled risk exposure.

Trading Strategies that Use the Falling Three Methods Pattern

Falling Three Methods with Moving Average Confirmation

Concept
This setup combines the Falling Three Methods pattern with trend confirmation to ensure trades align with the broader market direction.

Setup
Apply the 20-EMA and 50-EMA to your chart. Confirm that price remains below both EMAs, signaling a clear downtrend.

Short Setup
Identify a Falling Three Methods formation developing beneath the EMAs.
Enter short once the breakout candle closes below the pattern.

Risk Management & Exit
Place the stop-loss above the consolidation highs and target the next support zone.

What Gives It an Edge
The dual-EMA filter helps confirm trend strength, reducing false entries against temporary pullbacks.

Falling Three Methods with RSI Pullback Strategy

Concept
This strategy pairs the Falling Three Methods pattern with a momentum oscillator to time entries after controlled pullbacks.

Setup
Add a 14-period RSI. During the small bullish candles, the RSI should pull back toward 50 but remain below it, showing momentum cooling within a downtrend.

Short Setup
Enter short when RSI turns down again as price breaks below the pattern.

Risk Management & Exit
Target the next support level or aim for a 2:1 reward-to-risk ratio.

What Gives It an Edge
The RSI filter confirms that bearish momentum is intact, helping avoid premature entries during minor counter-trend rallies.

Falling Three Methods with Volume Confirmation

Concept
Volume confirmation strengthens the reliability of this continuation pattern by validating real selling pressure.

Setup
The first bearish candle should have high volume, the three small bullish candles should show declining volume, and the final bearish candle should close with a volume spike, confirming renewed selling activity.

Short Setup
Enter short on the close of the fifth candle, placing the stop-loss above the consolidation zone.

Risk Management & Exit
Target the next support area or use a measured move based on the first candle’s range.

What Gives It an Edge
Volume expansion confirms trend continuation, showing that sellers are actively defending resistance after a brief pause.

Real Trading Example of Falling Three Methods (NVIDIA)

Context
NVIDIA (NVDA) trades in a steady downtrend from $920 to $880.

Price Behavior
A strong bearish candle appears at $880, followed by three small bullish candles retracing modestly to $890, staying within the initial range.

Indicator Action
Volume contracts during the pullback, signaling temporary relief before sellers step back in.

Trade Setup
A final bearish candle closes at $870, breaking below support. The trader enters short at $869, sets a stop-loss above $892, and targets $845.

Result
Price continues lower, hitting the target and delivering a 2.5:1 reward-to-risk trade, confirming the continuation setup.

Best Indicators to Combine with the Falling Three Methods Pattern

Common Mistakes and How to Avoid Them

Recognizing Failure Signals
Avoid trading when the three middle candles close above the first candle’s high, as this invalidates the setup.
Watch for weak volume on the continuation candle — it often signals exhaustion, not trend strength.
Do not trade this pattern in sideways markets; it works best in established downtrends.

Tips for Trading the Falling Three Methods

• Always confirm with the breakout candle close before entering.

• Combine with trend and momentum indicators for stronger confirmation.

• Use multi-timeframe analysis to stay aligned with the dominant trend.

• Maintain disciplined risk management — even reliable continuation setups can fail.

📉 Falling Three Methods vs. Bearish Flag — Which Signals Continuation More Efficiently?

Both the Falling Three Methods and the Bearish Flag signal bearish trend continuation, but they differ in formation speed and trade timing.

🧩 Pattern Overview

💡 Backtest Insights

Statement:
We backtested both continuation setups within established downtrends to compare their signal timing and reliability.

Evidence:
The Falling Three Methods produced trade entries approximately 2–3 candles faster than the Bearish Flag pattern, offering earlier participation in momentum moves. However, the Bearish Flag showed a slightly higher average profit-to-loss ratio (1:1.9 vs. 1:1.6), reflecting the advantage of waiting for a full pullback confirmation.

Insight:
Short-term traders may prefer the Falling Three Methods for quicker entries during active declines, while swing traders may favor the Bearish Flag for its stronger structure and reward potential.
To refine which suits your strategy, consider reviewing performance over time and comparing how each setup aligns with your preferred trade duration.