Identifying candlestick patterns is an important component of technical analysis. There is a school of stock market investing that believes that one can make money on a security by charting out its prices over a period of time and predicting where it is headed in the short term and the long term. Candlestick charts are one of the most commonly appearing graphical representations of stock prices alongside bar charts, line charts, point charts and figure charts.
The origin of the candlestick chart is attributed to a Japanese trader who is said to have developed the method to track prices of rice contracts in the 18th century. It is believed to have been introduced to the Western world by Steve Nison through his books, Strategies for Profiting with Japanese Candlestick Charts and Beyond Candlesticks: New Japanese Charting Techniques Revealed in 1991.
Types of candlestick patterns
Candlestick patterns can be broadly classified as bullish candlestick patterns and bearish candlestick patterns. There can also be indecisive patterns such as the Doji candlestick in which case neither the buyers nor the sellers are able to win at the end of the trading period. Some frequently appearing types are Hammer candlestick pattern, shooting star candlestick pattern, bullish engulfing, bearish engulfing, falling three candlestick pattern and the rising three candlestick pattern, the subject of this article.
What is the rising three methods candlestick pattern?
The rising three methods is a candlestick pattern that appears in an upward trend and resumes a similar trajectory in succession. It is a bullish continuation pattern, meaning it signals a strong buy-side period in the market and the trend is going to be sustained in the near future. Rising three methods can be seen in all kinds of time periods — 5 minutes, one hour, intra-day, weekly or even monthly charts.
How to spot a rising three methods candlestick pattern?
The rising three candlestick pattern has five candlesticks. The first and the fifth ones are light — usually denoted by the green colour. They are long bullish candlesticks. The second, third and fifth candlesticks are dark — generally denoted in red. They are short bearish candlesticks. In the illustration below the five candlesticks have been assumed to signify five successive days of trading. However, the rising three candlestick pattern may appear in any trading duration as explained earlier i.e. it is applicable to both intra-day trading and positional trading.
Illustration: Rising three methods candlestick pattern
Anatomy of rising three methods candlestick pattern
You might wonder what the black lines above and below the candlesticks stand for. Like in a regular candlestick we light in our homes, these are called wicks or shadows. They signify the highs and lows during the trading period being considered. In our case, they denote the intra-day highs and intra-day lows reached by the security.
2) Opening and closing prices:
The downward limit of the green candlesticks (the point at which the short side of the bar starts) denotes the opening price and the upward limit (the point at which the short side of the bar ends) signifies the closing price. Following the same logic, the upward threshold of the red ones tells us where the stock started in the trading session and the downward limit tells us where it ended.
Important points to remember about rising three methods:
1) An investor can hold their trade or buy more of a stock on confirmation of the rising three methods candlestick pattern to make possible gains.
2) The first and second candles could also be bullish marubozu candlesticks in the rising three candlestick pattern— meaning the absence of wicks/shadows above and below them. This implies the opening price is the low and the closing price is the high reached during the trading session in consideration.
3) The fifth candlestick should not break the low of the first candlestick. Moreover, the high of the fifth should be above the high of the first in the ring three methods. This signifies that the bulls are now dictating the terms in the market regarding the security in question.
4) The fifth one should have more volume than the first in the rising three candlestick pattern. The volumes of the second, third and fourth candlesticks are not very important.
The rising three candlestick pattern shows up more in intra-day and daily charts than weekly and monthly charts. Generally, traders try to make gains when there’s an indication of a changing trend in the rising three methods. The rising three methods should not be confused with the falling three methods candlestick pattern, which signals a pause in the downtrend, as both look similar except that the colours of the candlesticks are swapped.