Falling Three Methods Continuation

Entry Logic

• Exact entry trigger: Sell on a break below the low of the first candle.
• Confirmation requirements: A five-candle pattern. A long bearish candle, followed by three small bullish candles that stay within the range of the first candle, and a final long bearish candle that closes below the first candle.
• Timeframe required: Daily chart.
• Location context: In an established downtrend.
• Market condition requirement: A trending market.

Exit Logic

• Profit target(s): A measured move target.
• Scaling out rules: N/A.
• Trailing stop rules: Use the 20-day moving average.
• Exit on signal failure: A close above the high of the first candle.
• Exit on opposite signal: A strong bullish pattern.
• Exit on time expiration: N/A.
• Exit on momentum loss: N/A.

Stop Loss Structure

• Hard stop location: Above the high of the first candle.
• Soft stop rules: N/A.
• Maximum dollar loss per trade: 1% of capital.
• Maximum percent loss per trade: N/A.
• Structural stop placement: Above the pattern.

Risk Management Framework

• Risk per trade: 1%.
• Maximum daily loss limit: 2%.
• Maximum weekly loss limit: 5%.
• Maximum drawdown allowed: 15%.
• Risk-reward ratio requirement: 1:3.

Position Sizing Model

• Recommended sizing approach: Fixed risk.
• Volatility-based adjustment: N/A.
• Conviction-based sizing (A+/A/B setup): A+ for a pattern with small bullish candles and a strong final bearish candle. A for a standard pattern. B for a pattern with larger bullish candles.
• Scaling in rules: N/A.
• Scaling out rules: N/A.

Trade Filtering

• Market conditions to avoid: An uptrend.
• Specific setups required: A clear Falling Three Methods pattern.
• Stock/instrument requirements: Any liquid instrument.
• Time of day restrictions: N/A.
• Chop/news avoidance rules: N/A.

Context Framework

• Trend direction assessment: Continuation of a downtrend.
• VWAP relationship: N/A.
• Moving average relationship: The pattern often forms below key moving averages.
• Range location: In the middle of a trend.
• Higher timeframe alignment: The weekly chart should be in a downtrend.

Trade Management Rules

• When to move stop to breakeven: After a 1R move.
• When to scale out: N/A.
• When to add size: N/A.
• How to handle fast moves vs slow moves: Let it run.

Time Rules

• Optimal trading window: N/A.
• Times to avoid: N/A.
• Session-specific notes: N/A.

Setup Classification

• A+ setup criteria: A perfect pattern with high volume on the final candle.
• A setup criteria: A standard pattern.
• B setup criteria: A pattern with larger bullish candles.
• C setup criteria (avoid): A pattern in an uptrend.

Market Selection Criteria

• Instrument requirements: Any liquid instrument.
• Volume/liquidity requirements: High volume.
• Volatility requirements: N/A.

Statistical Edge Metrics

• Expected win rate: 65-70%
• Average win size: 3R
• Average loss size: 1R
• Profit factor: 2.0 - 2.5
• Expectancy per trade: 1R.

Failure Conditions

• Market conditions where strategy fails: When a trend is ending.
• Specific scenarios to avoid: A pattern with large bullish candles that close near the high of the first candle.

Psychological Rules

• Key mental discipline requirements: The ability to hold a winning trade.

Advanced Components

• Market regime detection: N/A.
• Volatility/liquidity filters: N/A.
• Correlation filters: N/A.
• Multi-timeframe alignment: The weekly chart should support a bearish bias.

Location

• Where this setup is strongest: In a strong, established downtrend.
• Where this setup is weakest: At the end of a trend.
• Location changes outcome: Yes.