What are Rising Three Methods?

All the investors who have a fortune in the stock market started systematically by investing a portion of their savings in good stocks. As they made profits, they re-invested the profits, thereby increasing their returns. By repeating this process and booking profits along the way, anyone can multiply their wealth by a huge margin. Unfortunately, the hypothetical process of always making profits is not true as the stock market is volatile and follows various trends that can be negative. If the market is in a downtrend, you can incur losses, and lose a chunk of your invested amount along with years of progress.

In such cases, you must ensure that where you are investing in the right stocks that turn into profits. This is where technical analysis comes to play. Technical analysis is the study of chart patterns, graphs, and diagrams on a screen. The idea is to understand price and volume trends and pick stocks accordingly. Technical analysis is based on the premise that historical price trends tend to repeat over time. It allows them to find the ideal entry and exit point and mitigate the chances of losses by a hefty margin. Among numerous technical indicators, there is one that is effectively used by professional investors called Rising Three Methods. But first, let’s understand a little about candlestick charts.

Candlestick charts and their related terms

If you have ever looked at a chart or graph of stock, you would have seen what looks like colored candles positioned at various places. These are called candlesticks, and the chart you are looking at is called the candlestick chart.

Candlesticks visually represent the size of the price fluctuations of a specific stock. Investors use these candlesticks to understand where the market is going (market trend) based on the price fluctuations and help them predict the trend reversal (when the current trend will be reversed). Each candle has three parts:

• The Body
• The Upper Shadow
• The Lower Shadow

The body is either of green or red color and has four points of data:

• Open The first trade during the represented period.
• High: The highest traded price.
• Low: The lowest traded price.
• Close: The last trade during the represented period.

Let’s understand the falling three methods.

What is the Rising Three Methods Candlestick pattern?

The rising three methods candlestick pattern is a bullish continuation pattern that always occurs when the market is in an uptrend, and the prices of shares are increasing. The five candle continuation pattern of the rising three methods candlestick indicates an interruption but not a long-term reversal of the current bullish trend. In simple terms, it means that the rising three methods candlestick signals that the current rising prices may fall temporarily but will rise again in the future as the uptrend will continue after the conclusion of the rising three methods candlestick pattern.

The rising three methods are identified by five candlesticks. The first one is a long green candle, indicating the current uptrend. It is followed by three short red candlesticks that indicate a temporary bearish trend. They are followed by the fifth long green candle that concludes the rising three methods and signals the continuation of the bullish trend.

Understanding the Rising Three Methods Candlestick Pattern

The rising three methods candlestick pattern has the potential to occur at the time of an uptrend and when the market is witnessing a rise in share prices. The rise is the result of positive investor sentiments and increased buyer interest. In such a case, the uptrend is likely to continue.

However, at the same time, the bears try to take control of the market from the bulls and hopefully force the prices down from the current levels. Till the first green candle, the uptrend continues, and the bulls are in control. But, after the first long candle, the market opens with negative sentiment, and the bulls lose conviction to drive the market to a new high.

The increased control of the bears and the decreased conviction of the bulls are reflected on the candlestick charts by three short red candles. It results in fading buyer pressure, and the buying volume becomes lower than the selling volume, driving the prices down. However, on the last day, the bulls again take control of the market as the bears fail to sustain the current downtrend. As a result, the buyer interest rises along with its volume over the selling volume, resulting in the continuation of the bullish trend. It is reflected by the fifth long green candle.

Rising Three Methods Examples

Suppose a stock is trading at Rs 400 currently and has increased from Rs 250 in two weeks. Contrary to investors thinking it will rise more, it tanks and goes to Rs 372, 350, and 330 in three days. At this point, if you can identify the rising three methods on the chart, you know that this is a temporary consolidation, and the bullish trend will continue. The stock follows the rising three methods’ ideology and goes to Rs 355 again the next day, signifying that the bullish trend will continue, and it can go above the Rs 400 level in the next few days.

Rising Three Methods Trading Strategy

Considering the rising three methods candlestick pattern, you can know when to enter or exit a particular trade. You can enter the market after the closing of the fifth candle as it signifies that the bullish trend will continue and the price will rise further. Furthermore, you can also enter a trade after the price movement is above the high of the final fifth candle. If you have a high-risk appetite, you can look to enter a trade before the final fifth candle. However, in such a case, you should be prepared to exit the trade if the last candle fails to conclude the pattern, indicating that a bearish trend is likely to follow.

One point to consider while trading the rising three methods is that it should not be identified beneath the key resistance level of the stock. It is a vital consideration as it allows the investors to ensure that the bullish trend has enough room and potential to sustain and continue after the fifth long candle. Furthermore, the rising three methods have more potential to succeed if the wicks of the first candle, which denotes the high and low price for the period, are shallow and form above a whole number mathematically.

You can put a stop-loss in all of your trades immediately below the low of the fifth candle or immediately below the second short candle. If you want to give your trade some room for price movement, you can put the stop loss immediately below the first bullish candle. The stop loss placement entirely depends on your risk appetite and how much profit potential you want to leave for your trades.

Final Words

The rising three methods candlestick pattern is a bullish pattern that occurs when the prices in the market are rising and indicates that even though there may be a short reversal of the uptrend, it may/may not continue after the conclusion. This type of pattern is contrasted with the falling three methods, which is a bearish trend continuation pattern. However, as it is a possibility that the rising three methods may fail to sustain the bullish trend, it is advised that you use other technical indicators along with the rising three methods pattern to create a fool-proof trading strategy.

Frequently Asked Questions

When does the rising three methods candlestick pattern occur?

Unlike the falling three methods, which occur at the time of a downtrend, the rising three methods occur at the time of an uptrend. When it does, it indicates that the current bullish trend is likely to continue after a short counter-trend.

How can you identify a rising three methods candlestick pattern?

The rising three methods have five candles. The first is a long green candle followed by three short red candles and a fifth long green candle.