The Falling 3 Candlestick Pattern is a technical analysis tool used in forex trading to identify potential reversal points in a downward trend. It is believed to have originated in Japan, where it is known as “samurai three black crows.”
The pattern consists of three consecutive bearish candlesticks, each with a lower close than the previous one. These candlesticks indicate that bears, or sellers, are in control of the market and that the downward trend is likely to continue.
What is the Falling 3 Candlestick Pattern?
The strategy behind the Falling 3 Candlestick Pattern is to identify potential reversal points in the market and capitalize on them by taking a short position, or selling the currency pair.
- The pattern indicates a strong bearish sentiment in the market, as evidenced by the three consecutive bearish candlesticks.
- The pattern can be used as a confirmatory tool, in conjunction with other technical indicators, to increase the likelihood of a successful trade.
- The pattern can be used to identify potential areas of support and resistance in the market, allowing traders to set appropriate stop-loss and take-profit orders.
Falling 3 Strategy
To effectively use the Falling 3 Candlestick Pattern as a trading strategy, traders can consider the following tips:
- Set the sell trade at the open of the third candlestick in the pattern, as this is when the pattern is completed.
- Set the stop loss at the top of the first candlestick in the pattern. This will protect the trade from potential reversals if the trend does not continue as expected.
- Take profit at least three candles below the entry point. This will allow the trade to capture a significant move in the downward trend and give the trade some room to breathe.
Bearish Falling 3 Candlestick Pattern
- If the pattern appears in the middle or at the top of an uptrend, it may indicate that the trend is about to reverse and that the currency pair is likely to fall in value.
- If the pattern is followed by a bearish candlestick, it may be a sign that the trend is about to turn around and that the currency pair is likely to fall in value.
- If the pattern is accompanied by other bearish technical indicators, such as a negative divergence in a momentum indicator, it may be a sign that the currency pair is about to fall in value.
Falling 3 Candlestick Pattern Pros & Cons
Pros
- The pattern’s easy recognition and interpretation make it suitable for traders at all skill levels.
- By identifying potential reversal points in the market, the pattern can help traders take advantage of these opportunities through short positions.
- Using the pattern in combination with other technical indicators can increase the chances of a successful trade.
Cons
- The pattern may not always accurately predict market movements and can give false signals.
- Different traders may have differing opinions on the significance of the pattern, leading to subjectivity in its interpretation.
- Market conditions like news events and economic data releases can affect the accuracy of the pattern’s signals.
Conclusion
The Falling 3 Candlestick Pattern is a useful analysis tool that is used to identify potential reversal points in a downward trend in the forex market. It consists of three consecutive bearish candlesticks, each with a lower open and close than the previous one. This pattern can be a useful tool for traders looking to enter a sell trade or to exit a long position.
It is important to note that the Falling 3 Candlestick Pattern is not a guarantee of a reversal, and traders should confirm candlestick patterns with other technical indicators and analysis before making any trading decisions. It is also useful for traders who have a lot of time to analyze the market, as they can use the pattern to help identify potential entry and exit points.
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