The rising three methods is a powerful Japanese candlestick pattern that signals continuation of an uptrend. This five-candle formation shows a brief consolidation before bulls resume control. When properly identified, it provides excellent buying opportunities in trending markets.
What is the Rising Three Methods Pattern?
The rising three methods is a five-candle bullish continuation pattern consisting of:
- First candle: A long bullish candle in an uptrend
- Middle candles: Three small bearish candles that stay within the range of the first candle
- Fifth candle: A long bullish candle that closes above the first candle's close
Key concept: The three small candles represent weak selling pressure that fails to reverse the trend. When buyers return on the fifth candle, it confirms the uptrend will continue. The pattern shows bears tried but could not overcome bullish momentum.
Pattern Identification Rules
All five criteria must be met for a valid rising three methods pattern:
1. Existing Uptrend
- The pattern must form during a confirmed uptrend
- Price should be making higher highs and higher lows
- Moving averages should slope upward
2. First Candle Requirements
- Must be a long bullish (green/white) candle
- Body should be significantly larger than recent candles
- Shows strong buying pressure
3. Middle Three Candles
- Should be small-bodied candles (preferably bearish)
- Bodies must stay within the high-low range of the first candle
- Typically drift downward or sideways
- Volume should decline during these candles
4. Fifth Candle Requirements
- Must be a long bullish candle
- Must close above the close of the first candle
- Volume should increase, confirming buyer return
Rising Three Methods Example
Day 1: Stock rallies from $40 to $45 on a long green candle with high volume.
Days 2-4: Three small red candles form, trading between $43 and $45 on declining volume.
Day 5: A long green candle pushes price from $43 to $48, closing above Day 1's close of $45.
Signal: Buy entry confirmed. Target the next resistance level.
Trading the Rising Three Methods
Entry Strategies
- Aggressive: Enter long on the close of the fifth candle
- Conservative: Wait for a higher open on day six to confirm
- Options: Buy calls with expiration 2-4 weeks out
Stop Loss Placement
- Place stops below the low of the pattern (lowest point of middle candles)
- This level represents pattern invalidation
- Risk should not exceed 2-3% of account
Profit Targets
- First target: 1:1 risk-reward ratio
- Second target: Next significant resistance level
- Extended target: 1.5x to 2x the pattern height
- Use trailing stops after first target is hit
Volume Confirmation
Volume patterns strengthen the rising three methods signal:
- First candle: Above average volume confirms buying pressure
- Middle candles: Declining volume shows weak selling interest
- Fifth candle: Increasing volume confirms bullish resumption
- Patterns with proper volume have significantly higher success rates
Psychology Behind the Pattern
Understanding the psychology improves your pattern recognition:
- Strong initial buying creates momentum
- Short-term traders take profits, causing a minor pullback
- New sellers step in, thinking the rally is over
- The pullback fails to break the pattern low, trapping shorts
- Buyers return with force, triggering short covering
Common Pattern Variations
The pattern may vary slightly while remaining valid:
- Two middle candles: Less common but still valid if other rules met
- Four middle candles: Extended consolidation, still valid
- Doji in middle: Acceptable, shows indecision
- One bullish middle candle: Pattern weakens slightly but may work
Pattern Failure Signs
Avoid trading when you see these warning signs:
- Middle candles close below the first candle's low
- Fifth candle fails to close above the first candle
- Volume increases during the middle candles (distribution)
- Pattern forms against the larger trend
- Major resistance level is immediately above
Best Market Conditions
The rising three methods works best in these conditions:
- Strong uptrending markets
- Sector or market-wide strength
- After positive earnings surprises
- During accumulation phases
- Low VIX environments
Comparing Rising and Falling Three Methods
These patterns are mirror images of each other:
- Rising three methods: Bullish continuation in uptrends
- Falling three methods: Bearish continuation in downtrends
- Both require five candles with contained middle section
- Both need volume confirmation
- Trade direction matches the existing trend
Combining with Other Analysis
Improve pattern reliability with additional confirmation:
- Trend indicators: ADX above 25 confirms strong trend
- Moving averages: Price above 20 and 50-day MAs
- Support/resistance: Pattern bouncing off support is stronger
- RSI: Bullish momentum confirmed if RSI above 50
Analyze Your Pattern Trades
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Summary
The rising three methods is a reliable five-candle bullish continuation pattern. It requires a long bullish candle, three small contained candles, and a final bullish candle closing above the first. Volume should decline in the middle and increase on the fifth candle. Trade this pattern only in confirmed uptrends with proper stop losses below the pattern low. When all criteria align, this pattern offers high-probability long entries.
Learn more: Falling Three Methods and Moving Averages Explained.