must be twice the length of the body for it toqualify as a Hammer. This is quite possible if the gap on the second day islarge and followed by significantly lower prices on days three and four.This, of course, supports the pattern.The bearish Breakaway pattern reduces to a long candle line with awhite body at the lower end of its range (Figure 3-87). Chances are thatthis would not be a Shooting Star because of the large gap on the secondday and the higher prices that followed. It seems that the bearish Breakaway would require further confirmation before selling.\
Related PatternsBecause of this pattern's complexity, there are no related patterns.
Reversal candle Patterns
Chapter 3
Two Crows(niwa garasu)Bearish reversal pattern.Confirmation is suggested.Figure 3-89
4. The third day opens inside the body of the second day and closesinside the body of the first day.
Scenarios and Psychology Behind the PatternThe market has had an extended up move. A gap higher followed by alower close for the second day shows that there is some weakness in therally. The third day opens higher, but not above the open of the previousday, and then sells off. This sell-off closes well into the body of the firstday. This action fills the gap after only the second day. The bullishness hasto be eroding quickly.
Pattern Flexibility
CommentaryThis pattern is good only as a topping reversal or bearish pattern. Theuptrend is supported by a long white day. The next day gaps much higher,but closes near its low which is still above the body of the first day. Thenext (third) day opens inside the body of the second black day, then sellsoff into the body of the first day. This has closed the gap and given us thesame pattern as a Dark Cloud Cover if the last two days of the Two Crowspattern were combined into a single candle line. The fact that this gap wasfilled so quickly somewhat eliminates the traditional gap analysis, whichwould indicate a continuation of the trend.
The Two Crows pattern is slightly more bearish than the Upside Gap TwoCrows pattern. The third day is a long black day which needs to close onlyinside the body of the first day. The longer this black day is and the lowerit closes into the first day, the more bearish it is.
Pattern BreakdownFigure 3-90
Rules of Recognition1. The trend continues with a long white day.2. The second day is a gap up and a black day.
3. The third day is also a black day.
The Two Crows pattern reduces to a possible Shooting Star line (Figure3-90). This would support the bearishness of the Two Crows pattern.
Chapter 3
Related PatternsThe Two Crows pattern is similar to the Dark Cloud Cover in that itrepresents a short-term top in the market. If the second and third days werecombined into one, the pattern would become a Dark Cloud Cover. TheUpside Gap Two Crows is slightly different in that the third day does notclose into the body of the first day. It also is a weak version of the EveningStar, except that there is no gap between the second and third bodies.
Example
Reversal Candle Patterns
Three inside Up and Three inside Down(harami age and harami sage)
No confirmation is required.Figure 3-92
Figure 3-93
sdl
Figure 3-91
CommentaryThe Three Inside Up and Three Inside Down patterns are confirmations forthe Harami pattern. As shown in Figures 3-92 and 3-93, the first two daysare exactly the same as the Harami. The third day is a confirming close daywith respect to the bullish or bearish case. A bullish Harami followed by athird day that closes higher would be a Three Inside Up pattern. Similarly,
a bearish Harami with a lower close on the third day would be a ThreeInside Down pattern., The Three Inside Up and Three Inside Down patterns are not found in
any Japanese literature. I developed them to assist in improving the overallresults of the Harami pattern, which they have done quite well.
Rules of Recognition1. A Harami pattern is first identified using all previously set rules.
2. The third day shows a higher close for a Three Inside Up and alower close for a Three Inside Down.
Chapter 3
Reversal Candle Patterns
Scenarios and Psychology Behind the Pattern
Examples
This pattern, being a confirmation for the Harami, can represent the success of the Harami pattern only by moving in the forecast direction.
Figure S-96A
Pattern FlexibilityBecause this pattern is a confirmation of the Harami pattern, the flexibilitywould be the same as that of the Harami. The amount of engulfment andsize of the second day helps to strengthen or weaken this pattern, as thecase may be.
The bullish Three Inside Up pattern reduces to a bullish Hammer whichsupports the pattern (Figure 3-94). The bearish Three Inside Down reducesto a bearish Shooting Star line, which also supports it (Figure 3-95).
Related PatternsThe Harami pattern and Harami Cross pattern are part of these patterns.
Reversal candle Patterns
Three Outside up and Three Outside Down(tsutsumi age and tsutsumi sage)No confirmation is required.
Figure 3-97
Figure 3-98
CommentaryThe Three Outside Up and Three Outside Down patterns (Figures 3-97 and3-98) are confirmations for the Engulfing patterns. The concept is identicalto the Three Inside Up and Three Inside Down patterns and how theyworked with the Harami. Here, the Engulfing pattern is followed by eithera higher or a lower close on the third day, depending on whether the
pattern is up or down.The Three Outside Up and Three Outside Down patterns are not found
in any Japanese literature. I developed them to assist in improving theoverall results of the Engulfing pattern, which they have done quite well.
Pattern Recognition1. An Engulfing pattern is formed using all of the previously set rules.2. The third day has a higher close for the Three Outside Up patternand a lower close for a Three Outside Down pattern.
Reversal candle Patterns
Chapter 3
Scenarios and Psychology Behind the Pattern
Examples
These patterns, representing the confirmation of the Engulfing pattern, canonly show the success of the forecast of the appropriate Engulfing pattern.
Figure 3-101 A
Pattern FlexibilityConfirmation patterns do not have any more flexibility than the underlying
pattern. The amount of confirmation made on the last day can influencethe magnitude of this pattern's forecast.
Pattern BreakdownFigure 3-99
Figure 3-100
The bullish Three Outside Up pattern reduces to a possible Hammer line(Figure 3-99), and the bearish Three Outside Down reduces to a possibleShooting Star line (Figure 3-100). The word possible is used here becausethe difference between the first day's open and the third day's close can besignificant, which would negate the Hammer and Shooting Star lines. The
supporting point is that the body will be the color of the sentiment.
Related PatternsThe Engulfing pattern is a subpart of this pattern.
Chapter 3
Reversal candle Patterns
Figure 3-101B
Three Stars in the South•*1SS> CISSl
(kyoku no santen boshi)Bullish reversal pattern.Confirmation is suggested.Figure 3-102
This pattern shows a downtrend slowly deteriorating with less and lessdaily price movement and consecutively higher lows (Figure 3-102). Thelong lower shadow on the first day is critical to this pattern because it isthe first sign of buying enthusiasm. The next day opens higher, tradeslower, but does not go lower than the previous day's low. This second dayalso closes off of its low. The third day is a Black Marubozu and isengulfed by the previous day's range.
Rules of Recognition1. The first day is a long black day with a long lower shadow (Hammer-like).
'. The second day has the same basic shape as the first day, onlysmaller. The low is above the previous day's low.
Chapter 33. The third day is a small Black Marubozu that opens and closesinside the previous day's range.
Scenarios and Psychology Behind the PatternA downtrend has continued when, after a new low has been made, a rallycloses well above the low. This will cause some concern among the shortsbecause it represents buying, something that has not been happening untilnow. The second day opens higher, which lets some longs get out of theirpositions. However, that is the high for the day. Trading is lower, but notlower than the previous day, which causes a rally to close above the low.The bears are certainly concerned now because of the higher low. The lastday is a day of indecision, with hardly any price movement. Anyone whois still short will not want to see anything more to the up side.
Pattern FlexibilityThe last day of this pattern could have small shadows that probably wouldnot greatly affect the outcome. Basically, each consecutive day is engulfedby the previous day's range.
Pattern BreakdownFigure 3-103
Reversal candle Patterns
This pattern reduces to a long black line, which normally is quite bearish(Figure 3-103). Because of this conflict, definite confirmation should berequired.
Related PatternsThis is somewhat like the Three Black Crows, except that the lows are notlower and the last day is not a long body. Of course, this pattern has abullish implication, whereas the Three Black Crows pattern is bearish.
ExampleFigure 3-104
Reversal Candle Patterns
Chapter 3
Concealing Baby Swallow(kotsubame tsutsumi)Bullish reversal pattern.No confirmation is required.
2. The third day is black with a down gap open. However, this daytrades into the body of the previous day, producing a long uppershadow.
3. The fourth black day completely engulfs the third day, includingthe shadow.
Figure 3-105
scenarios and Psychology Behind the PatternAny time a downtrend can continue with two Black Marubozu days, thebears must be excited. Then on the third day, the open is gapped down,which also adds to the excitement. However, trading during this day goesabove the close of the previous day and causes some real concern about thedowntrend, even though the day closes at or near its low. The next dayopens significantly higher with a gap. After the opening, however, themarket sells off and closes at a new low. This last day has given the shortsan excellent opportunity to cover their short positions.
Pattern Flexibility
CommentaryTwo Black Marubozu days support the strength of the downtrend (Figure3-105). On the third day, the downtrend begins to deteriorate, with aperiod of trading above the open price. This is especially important because the open was gapped down from the previous day's close. Thefourth day completely engulfs the third day, including the upper shadow.Even though the close is at a new low, the velocity of the previous downtrend has eroded significantly and shorts should be protected.
Rules of Recognition1. Two Black Marubozu days make up the first two days of thispattern.
This is a very strict pattern and does not allow much in the way of flexibility. The gap between the second and third day is necessary, and the uppershadow of the third day must extend into the previous day's body. Inaddition the fourth day must completely engulf the previous day's range.To meet all of these requirements, only a few changes in relative size canbe allowed.
This pattern reduces to a long black day which is almost always considereda bearish day (Figure 3-106). Because of this direct conflict, confirmationis required.
Reversal candle Patterns
Related PatternsConcealing Baby Swallow resembles the Three Black Crows here, as didthe Three Stars in the South pattern. However, the Three Black Crows is abearish pattern and must be in an uptrend to be valid, whereas this patternoccurs in a downtrend. This pattern starts out much like the Ladder Bottompattern.
Chapter 3
Stick Sandwich(gyakusashi niten zoko)Bullish reversal pattern.Confirmation is suggested.Figure 3-108
Reversal candle Patterns
suggests that the previous downtrend has probably reversed and that shortsshould be protected, if not covered. The next day, prices open even higher,which should cause some covering initially, but then prices drift lower toclose at the same price as two days ago. Anyone who does not notesupport and resistance points in the market is taking exceptional risk.Another day of trading should tell the story.
Pattern FlexibilitySome Japanese references use the low prices as the support point for thetwo black days. Using the close price presents a more memorable supportpoint and therefore a better chance of reversal.
Pattern Breakdown
Commentary
Figure 3-109
In the Stick Sandwich pattern two black bodies have a white body betweenthem (Figure 3-108). The closing prices of the two black bodies must beequal. A support price has been found and the opportunity for prices toreverse is quite good.
Rules of Recognition1. A black body in a downtrend is followed by a white body thattrades above the close of the black body.2. The third day is a black day with a close equal to the first day.
Scenarios and Psychology Behind the PatternA good downtrend is under way. Prices open higher on the next tradingday and then trade higher all day, closing at or near the high. This action
The Stick Sandwich breaks down to an Inverted Hammer line as long asthe body of the first day is considerable smaller than the range of the thirdday (Figure 3-109). If the first day is a small body and the third day's pricefange (high to low) is two or three times that of the first day, this patternReduces to the bullish Inverted Hammer. However, if this does not occur,the Stick Sandwich reduces to a black line, which is usually bearish. As aresult, confirmation is suggested.
Chapter 3
Reversal Candle Patterns
Related Patterns
Kicking
The last two days of this pattern are similar to a bearish Engulfing patternin most instances. It would have to be seen if the support point is betterthan the bearish candle pattern, assuming no consideration is made to theprevious trend.
(keri ashi)No confirmation is required.
Figure 3-111
Figure 3-112
CommentaryThe Kicking pattern is similar to the Separating Lines pattern, except thatinstead of the open prices being equal, a gap occurs. The bullish Kickingpattern is a Black Marubozu followed by a White Marubozu (Figure 3111). The bearish Kicking pattern is a White Marubozu followed by aBlack Marubozu (Figure 3-112). Some Japanese theory says that futuremovement will be in the direction of the longer side of the two candles,regardless of the price trend. The market direction is not as important withthis pattern as it is with most other candle patterns.
Rules of Recognition1. A Marubozu of one color is followed by a Marubozu of the opposite color.
2. A gap must occur between the two lines.
Chapter 3
Reversal Candle Patterns
Scenarios and Psychology Behind the PatternThe market has been in a trend when prices gap the next day. The pricesnever enter into the previous day's range and then close with another gap.
Pattern FlexibilityThis allows no flexibility. If the gap does not exist, a Separating Lines(continuation) pattern will be formed.
Homing PigeonThe bullish Kicking pattern reduces to a long white candle line, whichusually is bullish (Figure 3-113). The bearish Kicking pattern reduces to along black candle line, which is usually bearish (Figure 3-114).
Related PatternsThe Separating Lines pattern is almost the same, except for the gap and thefact that the Separating Lines is a continuation pattern.
(shita banare kobato gaeshi)Bullish reversal pattern.
Confirmation is suggested.
Commentaryv ie Homing Pigeon closely resembles the Harami pattern, except that bothps; bodies are black rather than opposite in color.
Chapter 3Figure 3-116
Reversal candle Patterns
Figure 3-117
Related PatternsRules of Recognition1. A long black body occurs in a downtrend.2. A short black body is completely inside the previous day's body.
Scenarios and Psychology Behind the PatternThe market is in a downtrend, evidenced by a long black day. The nextday, prices open higher, trade completely within the prior day's body, andthen close slightly lower. Depending upon the severity of the previoustrend, this shows a deterioration and offers an opportunity to get out of themarket.
Pattern FlexibilityTwo-day patterns do not offer much flexibility.
Pattern BreakdownThe Homing Pigeon pattern reduces to a long black candle line with alower shadow, which certainly is not a bullish line (Figure 3-117). Confirmation would definitely be suggested.
The Harami is similar in its candle line relationship, but both of its daysmust be black.
Reversal candle Patterns
Chapter s
Ladder Bottom
Scenarios and Psychology Behind the Pattern
(hashigo gaeshi)Bullish reversal pattern.Confirmation is suggested.
A downtrend has been in place for some time and the bears are sure to becomplacent. After a good move to the downside, prices trade above theopen price and almost reach the high price of the previous day, but thenthey close at another new low. This action certainly will get the attentionof the shorts and shows that the market will not go down forever. Theshorts will rethink their positions and, if profits are good, the next day theywill sell. This action causes a gap up on the last day of the pattern and theclose is considerably higher. If volume is high on the last day, a trendreversal has probably occurred.
Figure 3-119
Pattern FlexibilityThe four black days of the Ladder Bottom pattern may or may not be longbut consecutively lower closes must occur. The last day must be white andmay be either long or short, as long as the close is above the previousday's high.
CommentaryAfter a reasonable downtrend with four consecutive lower closes and blackdays, the market trades higher than the open (Figure 3-119). This action isthe first indication of buying even though the market still closes at a newlow. On the next day, prices gap higher and never look back. The last daycloses much higher than the previous day or two.
Pattern BreakdownFigure 3-120
Rules of Recognition1. Three long black days with consecutive lower opens and closesoccur much like the Three Black Crows pattern.2. The fourth day is black with an upper shadow.
3. The last day is white with an open above the body of the previous
day.
e Ladder Bottom reduces to a Hammer pattern, which supports its bullimplications (Figure 3-120).
Chapter 3
Reversal candle Patterns
Related Patterns
Matching Low
The Ladder Bottom starts out just like the Concealing Baby Swallowpattern. The first three days also resemble the Three Black Crows patternexcept that a downtrend is in place.
(niten zoko/kenuki)Bullish reversal pattern.Confirmation is suggested.
Example
Figure 3-122
Figure 3-121
CommentaryThe Matching Low pattern follows a concept similar to that used in theStick Sandwich pattern. In fact, by removing the middle day in the StickSandwich pattern, you will get a Matching Low pattern. A long black daycontinues the downtrend, the next day opens higher, but then closes at thesame close of the previous day. This yields two black days together withtheir lower bodies (closes) equal. This pattern indicates a bottom has beenaade, even though the new low was tested and there was no follow||hjrough, which is indicative of a good support price.
1. A long black day occurs.2. The second day is also a black day with its close equal to the closeof the first day.
Chapter 3
Reversal candle Patterns
Scenarios and Psychology Behind the Pattern
Related Patterns
The market has been trading lower, as evidenced by another long blackday. The next day, prices open higher, trade still higher, and then close atthe same price as before. This is a classic indication of short-term supportand will cause much concern from any apathetic bears who ignore it.Apathetic bears are short the market, and quite comfortable with their shortposition. If they ignore the Matching Low as a possible trend reversal, itwill cause them much concern.An interesting concept is presented with this pattern. The psychologyof the market is not necessarily with the action behind the daily trading,but with the fact that the trading closes at the same price on both days.
The Matching Low closely resembles the Homing Pigeon pattern, but,because the closes are equal, the second day does not quite fit the definition of being engulfed.
Pattern FlexibilityThe length of the bodies of the two days may be either long or shortwithout affecting on the meaning of the pattern.
Pattern BreakdownFigure 3-123
The Matching Low pattern reduces to a long black line, which is usuallybearish (Figure 3-123). Confirmation would be highly recommended.
ExamplesFigure 3-124
Continuation patterns are included in a separate chapter from reversal patterns only to make later reference easier. Keep in mind that once a patternhas been identified, it is suggesting a direction for future price movement.It really doesn't matter if that future price movement is the same as beforeor a reversal. Continuation patterns, according to the Sakata Method, are atime of rest in the market. Whatever the pattern, you must make a decisionyour current position, even if that decision is to stay where you are.The format of discussion for this chapter is identical to that of theprevious chapter on reversal candle patterns. In condensed form, that format isPattern nameJapanese name and interpretationCommentary
raphic of classic pattern(s)uies of recognition
cenarios / psychology behind the pattern
attern flexibility
Continuation Patterns
Upside Tasuki capand Downside Tasuki Gap(uwa banare tasuki and shita banare tasuki)Confirmation is recommended.
Figure 4-2
e typical Tasuki line occurs when the price opens lower from a white,and then closes lower than the previous day's low. When the priceis higher from a black day's close and then closes higher than its highie opposite case. Tasuki lines are mentioned in a number of sources ofestick literature, but they do not contribute enough to be considereddividual patterns. A Tasuki is a sash for holding up sleeves. Thei Gaps involve the Tasuki line after a gap in the direction of thent market trend.Upside Tasuki Gap (Figure 4-1) is a white candlestick which hasd above the previous white candlestick, then followed by a blackicstick that closes inside that gap. This last day must also open inside
continuation Patterns
Chapter 4the second white day's body. An important point is that the gap madebetween the first two days is not filled. The philosophy is that one shouldgo long on the close of the last day. The same concept would be true inreverse for a Downside Tasuki Gap (Figure 4-2).
Pattern FlexibilityThe first day's color is not as important as the color of the second and thirddays. It is best that it be the same color as the second day, which wouldfully support the ongoing trend.
Rules of Recognition1. A trend is under way, with a gap between two candlesticks of thesame color.2. The color of the first two candlesticks represents the prevailingtrend.3. The third day, an opposite-color candlestick opens within the bodyof the second day.4. The third day closes into the gap but does not fully close the gap.
Scenarios and Psychology Behind the PatternThe psychology behind a Tasuki Gap is quite simple: Go with the trend ofthe gap. The correction day (the third day) did not fill the gap and the
previous trend should continue. This is looked upon as temporary profittaking. The Japanese widely follow gaps (windows). Therefore, the factthat the gap does not get filled or closed means that the previous trendshould resume.The literature is sometimes contradictory on gaps. One normally expects a gap to provide support and/or resistance. The fact that the gap istested so quickly is reason to believe that the gap may not provide its usualanalytic ability.
The Upside Tasuki Gap pattern reduces into a long line with a white bodyat the lower end (Figure 4-3). The only support here can be in the fact thatthe breakdown is a long white line which is normally considered bullish.The Downside Tasuki Gap reduces to a long black line which is usuallybearish. Because of the lack of strong support, further confirmation isrecommended.
Related PatternsThe Tasuki lines by themselves are somewhat opposite of the PiercingLine and the Dark Cloud Cover, which are reversal patterns. The Upsideand Downside Tasuki Gap patterns are very similar to the Upside andDownside Gap Three Methods patterns discussed later in this chapter. You
Continuation Patterns
Chapter 4will see that they are also in direct conflict with each other. It might bebest to see the statistical results of the pattern testing in later chapters.
Figure 4-5B
Continuation Patterns
Bullish Side-by-Side White LinesTwo white candlesticks of similar size are side-by-side after gappingabove another white candlestick. Not only are they of similar size, but theopening price should be very close. The Bullish Side-by Side White Lines(Figure 4-6) is also referred to as an Upside Gap Side-by-Side White Lines(uwappanare narabiaka).
Bearish Side-by-Side White LinesSide-by-Side White Lines which gap to the downside are very rare. Theseare also called Downside Gap Side-by-Side White Lines (Figure 4-7).Despite what appears to be obvious, these two white lines are looked uponas short covering. This action, like many continuation patterns, representsthe market taking a rest or buying time.It would be a normal expectation to have two Side-by-Side Black Linesfor this continuation pattern. A downside gap to Side-by-Side Black Lineswould certainly indicate a continuation of the downtrend. This pattern,however, is not of much use because it portrays the obvious. Anotherderivation of these lines would be Side-by-Side White Lines which do notgap, but are in an uptrending market. These are called Side-by-Side WhiteLines in Stalemate (Hdzumari narabiaka). These indicate that the market isapproaching its top and with limited support.
Commentaryw nhi means "in a row" and narabiaka means "whites in a row." TheCmeJTlklture rrefers to Side-by-Side Lines, both black and white, butJapanese literaturethemselves. Thennlvwncu uicy<uc ujonly indicatesmaiwic a pausey or a staiemaie^ ^^lfaes ^^ hayed m thepattern of importance ncicdirection of the current trend.
Rules of Recognition1. A gap is made in the direction of the trend.
2. The second day is a white candle line.3. The third day is also a white candle line of about the same size andopens at about the same price.
Continuation Patterns
Chapter 4
Scenarios and Psychology Behind the PatternBullish Side-by-Side white LinesThe market is in a uptrend. A long white candlestick is formed, whichfurther perpetuates the bullishness. The next day, the market gaps up onthe open and closes still higher. However, on the third day, the marketopens much lower, in fact, as low as the previous day's open. The initialselling that caused the lower open ends quickly and the market climbs toyet another high. This demonstrates the force behind the buyers, and therally should continue.
Bearish Side-by-Side White LinesA downtrend is further enhanced with a long black candle line followed bya large downward gap open on the next day. The market trades higher allday, but not high enough to close the gap. The third day opens lower, atabout the same open as the second day. Because of the resistance to furtherdownside action, shorts are covered, causing the third day also to rally andclose higher, but again not high enough to close the gap. If enough shortcovering was accomplished and the rally attempt was not very convincing,
the downtrend should continue.
Pattern FlexibilityBecause Side-by-Side White Lines are used only after gapping, there is notmuch flexibility in this pattern. The two white lines should be of similarbody length, but this length is not as important as the fact that they gappedin the direction of the trend. Their open prices should be close to the same,though.
The Upside Gap Side-by-Side White Lines reduce to a long white candlestick which fully supports the bullish continuation (Figure 4-8). TheDownside Gap Side-by-Side White Lines reduce to a black candlestickwith a long lower shadow (Figure 4-9). This single candle line does notfully support the bearish continuation and suggests further confirmation.
Related PatternsThere are no patterns comparable to the Side-by-Side White Lines. TheBreakaway pattern has some similarities in that the second and third daysgap in the direction of trend.
continuation Patterns
Continuation Patterns
Chapter 4
Rising Three Methodsand Falling Three Methods(uwa banare sanpoo ohdatekomi and shita banare sanpoo ohdatekomi)No confirmation is required.Figure 4-12
Falling Three MethodsThe Falling Three Methods pattern is the bearish counterpart of the RisingThree Methods pattern. A downtrend is underway, when it is further perpetuated with a long black candlestick (Figure 4-12). The next three daysproduce small-body days that move against the trend. It is best if thebodies of these reactionary days are white. It is noted that the bodies allremain within the high-low range of the first black candlestick. The nextand last days should open near the previous day's close and then close ata new low. The market's rest is over.
Rules of Recognition1. A long candlestick is formed representing the current trend.2. This candlestick is followed by a group of small real body candlesticks. It is best if they are opposite in color.
CommentaryThe Three Methods (Chapter 5) include the bullish Rising Three Methodsand the bearish Falling Three Methods. Both are continuation patterns thatrepresent breaks in the trend of prices without causing a reversal. They aredays of rest in the market action and can be used to add to positions, ifalready in the market.
Rising Three MethodsA long white candlestick is formed in an uptrend (Figure 4-11). After thislong day, a group of small-bodied candlesticks occur which show someresistance to the previous trend. These reaction days are generally black,but most importantly, their bodies all fall within the high-low range of thefirst long white day. Remember that the high-low range includes the shadows. The final candlestick (normally the fifth day) opens above the closeof the previous reaction day and then closes at a new high.
3. The small candlesticks rise or fall opposite to the trend and remainwithin the high-low range of the first day.4. The final day should be a strong day, with a close outside of thefirst day's close and in the direction of the original trend.
Scenarios and Psychology Behind the PatternThe concept behind the Rising Three Methods comes from early Japanesefutures trading history and is a vital part of the Sakata Method. The ThreeMethods pattern is considered a rest from trading or a rest from battle. Inmodern terminology, the market is just taking a break. The psychologybehind a move like this is that some doubt creeps in about the ability of thetrend to continue. This doubt increases as the small-range reaction daystake place. However, once the bulls see that a new low cannot be made,the bullishness is resumed and new highs are set quickly. The FallingThree Methods pattern is just the opposite.
Chapter 4
Continuation Patterns
Pattern Flexibility
Examples
Because this pattern normally consists