Rising Three Methods candlestick patterns indicate bullish continuation in an uptrend that has already been established. Traders are able to use these events as a signal to initiate long positions based on the expectation that market prices may travel higher in future sessions. Rising Three Methods chart patterns develop when the price action of a security has these characteristics:
When a Rising Three Methods candlestick appears, bulls are expected to be in charge during the coming sessions. However, as the formation develops, the bullish trend also takes a short pause (during three bearish candle periods) in order to consolidate and allow buyers to enter the market for this emerging trend activity:
For these reasons, the Rising Three Methods pattern can be thought of as either a consolidation or continuation price structure. Active traders will generally use this pattern to signal new opportunities to open long positions before the prior uptrend resumes. Of course, there is some flexibility with respect to the specific price parameters involved as long as the overall formation of the structure resembles the pattern depicted in the graphic above.
In this chart example, gold markets are experiencing a period of sideways consolidation after a long-term uptrend. Near the middle of the chart, a Rising Three Methods pattern appears and traders would be able to open bullish positions one the final price bar closes. Aggressive traders can establish an entry point before the fifth candle in the pattern closes, but trades should be exited in the event there is a failure during the final price bar (which would mean the pattern never completes).
In practice, it’s important for traders to understand that new positions should not be opened in cases where the Rising Three Methods formation occurs near a major resistance level (trendline resistance or historical resistance) as unexpected selling pressure can work to invalidate the pattern. Additionally, traders should protect each position using a stop-loss order that can be placed below the price low of the formation (usually found either in the first candle or in one of the middle three candles). As we can see in the chart example above, the Rising Three Methods candlestick pattern often occurs as a precursor to significant gains which is why the signal can be valuable for bullish technical analysis traders.