Falling Three Methods / 下降三法
Reference values based on Bulkowski's "Encyclopedia of Chart Patterns". Data is primarily from U.S. markets and may differ for other markets.
A reliable bearish continuation pattern based on the traditional Sakata methods. After a large bearish candle, three small bullish candles form within its range, followed by another large bearish candle that closes below the first candle's close. It indicates that the downtrend continues after a temporary bounce (rebound).
Enter short at the next candle's open after the fifth large bearish candle confirms. Or enter when the fifth candle's close clearly falls below the first candle's low. Confirm the fifth candle's volume is at least equal to the first.
First target: project the first bearish candle's range downward from the fifth candle's close. Or target the nearest support line. Second target: subtract the entire pattern range (middle candles' highest high minus fifth candle close).
Place a stop-loss slightly above the highest high of the three middle small candles. A tighter stop above the first bearish candle's open (high) is also possible. Skip the entry if risk-reward is not at least 1:2.
Ideally, high volume on the first bearish candle with a notable decrease during the three small bullish candles. Volume should increase again on the fifth bearish candle to at least equal the first. High volume on the middle bullish candles indicates strong buying pressure that may break the continuation pattern.