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The Harami and Harami Cross Candlesticks: A Trader’s Guide Engulfing Candlestick Patterns: A Trader’s Guide
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The 3-Method Formations: A Trader’s Guide

3-Method Formations, commonly known as the “Three Line Strike” pattern, are reliable candlestick patterns traders use worldwide. They effectively identify reversals and continuations in the market, providing a roadmap for traders to optimize their entry and exit points. This article will discuss the 3-Method formations in detail, outlining their identification guidelines, trading tips, and practical examples.

What is the 3-Method Formation?

The 3-Method formations have two variations: the bullish 3-Method formation and the bearish 3-Method formation.

  • Bullish 3-Method Formation: This pattern occurs during an uptrend. It consists of three small body bullish candles, followed by a bearish candle that opens below the third candle’s close and closes above the first candle’s open.
  • Bearish 3-Method Formation: This pattern appears during a downtrend. It consists of three small body bearish candles, followed by a bullish candle that opens above the third candle’s close and closes below the first candle’s open.

The candles’ color or body isn’t as important as their relative positions and the trend they’re indicating.

The 3 Method Formations

How to Trade the 3-Method Formations

When trading these formations, it’s crucial to understand that they indicate a possible continuation of the current trend.

  • The bullish 3-Method formation is a signal to buy or hold long positions, as the pattern suggests that the bullish trend will continue.
  • The bearish 3-Method formation, on the other hand, is a signal to sell or hold short positions, as the pattern indicates the continuation of the bearish trend.

However, as with all trading strategies, these signals should be used in conjunction with other technical analysis tools for best results.

Example scanner based on The 3-Method Formations

3-Method Formations can be used in Scanning the market. To see how exactly they can be used in this way, we provide the following sample. This is a scanner that searches the market for stocks using these formations.

"Three Methods Example Scanner" scanner by Dan Ushman
charts.trendspider.com
“Three Methods Example Scanner” scanner by Dan Ushman

Trading Tips

Here are some tips for trading the 3-Method formations:

  • First, wait for the fourth candle to complete before making a trading decision. The pattern is only confirmed after the fourth candle closes.
  • Use stop-loss orders to manage risk. For a bullish 3-Method formation, place the stop-loss below the low of the fourth candle. For a bearish 3-Method formation, place the stop-loss above the high of the fourth candle.
  • To confirm the trend, use other technical indicators like volume, Relative Strength Index (RSI), or Moving Average Convergence Divergence (MACD).

Practical Example

Suppose you’re observing a bullish trend in a particular stock over several periods. You notice a bullish 3-Method formation developing over the next four periods. The fourth candle’s close is above the first candle’s open, confirming the pattern. In response, you decide to buy more shares or hold onto your current long positions, anticipating a continuation of the bullish trend. To manage risk, you set a stop-loss order just below the low of the fourth candle.

The 3-Method formations are handy tools for both short-term and long-term traders, providing valuable insights into the market’s possible direction. But, as always, it’s essential to combine these patterns with other technical analysis tools and good risk management practices for optimal trading outcomes. Happy trading!

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The Harami and Harami Cross Candlesticks: A Trader’s Guide Engulfing Candlestick Patterns: A Trader’s Guide