What it means
A candlestick chart shows four prices for each period: the open, high, low and close. A green or white candle means the price closed higher than it opened, and a red or black candle means it closed lower.
The rising three methods uses five of these candles to tell a story about buyers and sellers. The first candle is a long bullish candle, showing strong buying.
The next three are small bearish candles, each closing slightly lower and staying within the high and low of the first candle. The fifth is another long bullish candle that closes above the close of the first, showing that the buyers have taken control again.
The interpretation is that sellers tried to reverse the trend but lacked the strength to push the price out of the first candle's range. The pause lets the market consolidate, which means it digests gains before the next move.
When the fifth candle breaks higher, many traders treat it as confirmation that the uptrend continues. Traders use it in different ways.
Some buy when the fifth candle closes above the first, placing a stop-loss order (an instruction to sell if the price falls to a set level) below the low of the three small candles. Others wait for extra confirmation, such as rising volume or support from other indicators.
The pattern has a bearish mirror image, called the falling three methods. It is a continuation pattern, so it matters only when it appears inside an existing trend.
Used on its own, it can give false signals, particularly in choppy markets. Like all chart patterns, it is not a guarantee.
It reflects past behaviour and relies on the judgement of the person reading the chart. Sensible traders combine it with other information and manage risk with stops and position sizing.
In practice
Real-world examples.
Example
A trader sees a stock rise strongly, drift lower for three small sessions without breaking the first day's low, and then jump to a new high. She recognises the rising three methods and buys with a stop below the low of the three small candles.
Example
A currency analyst reviews a daily chart of a currency pair in an uptrend. The pattern appears after a long rise, and she treats it as a sign that the uptrend is still intact, but waits for a rise in volume.
Example
A commodity trader sees three small down days after a strong gain in a metal. The third small candle breaks below the first candle's low, so the pattern fails, and he decides not to buy.
Formula
Calculation
Pattern conditions: Candle 1 is a long bullish candle. Candles 2 to 4 are small bearish candles whose highs and lows stay inside Candle 1's range. Candle 5 is a long bullish candle that closes above Candle 1's close.
Suppose a share trades as follows (open, high, low, close):
Candle 1: $50.00, $54.50, $49.80, $54.00 (range $49.80 to $54.50)
Candle 2: $54.00, $54.40, $53.20, $53.40
Candle 3: $53.40, $53.60, $52.70, $52.90
Candle 4: $52.90, $53.10, $52.20, $52.40
Candle 5: $52.60, $55.20, $52.50, $55.00
The highest high of candles 2 to 4 is $54.40, below $54.50, and the lowest low is $52.20, above $49.80, so all three stay inside the first candle's range. Candle 5 closes at $55.00, which is above Candle 1's close of $54.00. The pattern is confirmed.Case study
Seen in the real world.
Kestrel Capital is a fictional trading firm used in an illustrative scenario. One of its traders watches a retail share that has climbed from $42 to $54 over three weeks.
After a strong day, the share slips for three small sessions, closing at $53.40, $52.90 and $52.40, all within the earlier day's range. The next day it closes at $55.00. The trader buys 2,000 shares at $55.00 and places a stop at $52.00, risking $3.00 per share, or $6,000 in total.
The share rises to $59 over the following fortnight, and the trader sells for a gain of $8,000. The firm's risk manager notes that the trade worked, but reminds the team that the same pattern has failed on other occasions and that the stop was what kept the risk under control.
Watch out
Common mistakes.
- Treating it as a guaranteed signal. It shows a likely continuation, but it can fail.
- Using it in a downtrend or sideways market. It is a continuation pattern and is meaningful only inside an uptrend.
- Ignoring the range rule. If the small candles break below the first candle's low, the pattern is not valid.
Questions
People also ask.
What is the opposite pattern?
The falling three methods, which signals continuation of a downtrend.
How many candles are in the pattern?
Five: one long bullish, three small bearish and one long bullish.
Should I trade it alone?
Most traders combine it with volume, trend lines and risk controls.
From the founder's library
Take it further with the book.
Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.
25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.
View the book and save 25%Related