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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Bulkowski's Falling Three Methods

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Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 09/21/2017
22,359 -53.36 -0.2%
9,669 14.62 0.2%
731 -0.83 -0.1%
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22,450 or 21,500 by 10/01/2017
9,750 or 9,200 by 10/01/2017
775 or 730 by 10/01/2017
6,650 or 6,200 by 10/01/2017
2,600 or 2,425 by 10/01/2017

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.

My book, Encyclopedia of Candlestick ChartsEncyclopedia of Candlestick Charts book., pictured on the left, takes an in-depth look at candlesticks, including performance statistics.

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The falling three methods candles pattern is one of my favorite candlesticks. Why? Because it reminds me of a miniature measured move down chart pattern. That chart pattern sees price drop, recover during the corrective phase, and then the drop resumes. The falling three methods candle pattern accomplishes all of that in just five candles.

The falling three methods candlestick behaves in theory as it does in real life. It is a bearish continuation 71% of the time and a reversal the remainder of the time. Unfortunately, with just 64 samples appearing out of 4.7 million candle lines studied, solid performance statistics are as rare as the candle itself.

Important Results for Falling Three Methods

Theoretical performance: Bearish continuation
Tested performance: Bearish continuation 71% of the time
Frequency rank: 91
Overall performance rank: 89
Best percentage meeting price target: 40% (bull market, down breakout)
Best average move in 10 days: 4.58% (bull market, up breakout)
Best 10-day performance rank: 20 (bull market, up breakout)

All ranks are out of 103 candlestick patterns with the top performer ranking 1. "Best" means the highest rated of the four combinations of bull/bear market, up/down breakouts.

The above numbers are based on hundreds of perfect trades. See the glossary for definitions.

The ideal falling three methods candlestick
Falling Three Methods
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Falling Three Methods Discussion

The falling three methods candlestick pattern is so rare that I do not show in my Encyclopedia of Candlestick Charts book the statistics from the 64 falling three methods that I uncovered. Most of the entries would have been blank. The above important results show more information than the book.

The falling three methods pattern acts as a bearish continuation 71% of the time, giving it a rank of 7 which is very high (1 is best). As I mentioned, it is a rare bird, having a frequency rank of 91 out of 103 candles where 1 means it occurs most often. The overall performance ranks 89th probably due to the few samples available for testing. Just 40% of the candles meet the measure rule price target, which is the height of the candlestick pattern added to (upward breakouts) or subtracted from (downward breakouts) the top or bottom of the candle pattern, respectively. The average move is a rather robust 4.58% in 10 days, where a good move would be 6% or more. The 4.58% move also gives it the 20th best performance rank against the other 103 candle patterns.

Falling Three Methods Identification Guidelines

CharacteristicDiscussion
Number of candle linesFive.
Price trend leading to the patternDownward.
ConfigurationLook for a series of five candles in a downward price trend. The first day should be a tall black candle followed by three up trending small while candles (except the middle of the three, which can be either black or white), followed by another tall black candle with a close below the first day's close. The three middle candles should remain within the high-low range of the first candle.
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Falling Three Methods Example

The falling three methods candlestick on the daily scale

Shown on the daily chart, circled in red, is one of the few examples of a falling three methods candlestick. The first and last days are tall black candlesticks. Between them are three smaller candle lines that trend upward and remain within the high-low range of the first candle, well, sort of. The shadows of the middle three candles poke outside the range. The last candle closes below the low of the first candle.

This falling three methods pattern acts as a reversal of the brief downtrend. Price closes above the top of the five candlesticks, scoring an upward breakout.

-- Thomas Bulkowski

 

 

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Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. I doubt, therefore I might be.