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Intermediate

Falling Three Methods Pattern – Bearish Continuation

A bearish continuation pattern consisting of a long bearish candle, three small bullish candles inside, and a final long bearish candle. Learn how to identify and trade it.

Mark · Trader & Founder, Social Forex

Falling Three Methods Pattern – Bearish Continuation

Definition

The Falling Three Methods is a bearish continuation pattern that appears in a downtrend. It indicates a brief pause by sellers before pushing prices lower.

How to Identify

The pattern consists of five candles in order:

  • Candle 1: A long bearish candle (large body, may have small upper shadow) – confirms strong downtrend.
  • Candles 2,3,4: Three small bullish (or doji) candles that trade entirely within the range of Candle 1 (high and low). They must not exceed the high of Candle 1.
  • Candle 5: A long bearish candle that closes below the close of Candle 1 (or below its low), confirming the continuation.
    • Price Action — reading candlestick patterns in context

    How to Trade

    Entry: After Candle 5 closes (pattern confirmed), enter a sell order at the opening price of the next candle.

    Stop Loss: Place above the high of Candle 1 (or above the entire pattern's high, usually Candle 1's high).

    Take Profit: Set at previous support levels, or use a Risk:Reward ratio of 1:2 or 1:3.

    Real Example

    Assume USD/JPY is in a downtrend. Day 1: long bearish candle from 110.50 to 109.80. Days 2-4: three small bullish candles within 109.80-110.50 (not exceeding 110.50). Day 5: strong bearish candle closes at 109.20. When Candle 5 closes, trader enters sell at 109.20, stop loss above 110.60, target 108.50.

    Common Mistakes

  • Confusing with a bullish reversal: if the three small candles break above Candle 1's high, it's no longer a Falling Three Methods and may signal a reversal.
  • Entering too early before Candle 5 confirmation: always wait for Candle 5 to close below Candle 1.
  • Ignoring trend context: the pattern is only valid in a downtrend; sideways markets reduce its effectiveness.

    • Content is for reference only, not investment advice. Forex trading carries high risk.

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