The three-method continuation signal appears when there's a pause in trend development. On the chart, this is characterized by a sequence of small candlesticks following a significant one. The key feature is the appearance of new small candlesticks within the range of the preceding large candlestick. This sequence can consist of three or more candlesticks. The model concludes with a substantial candlestick in the direction of the trend, signaling a continuation. To initiate trading, it's advisable to start after the closure of this candlestick.
What to do when you see this signal:
1) When small candlesticks appear after a strong candlestick in a tendency direction you should be prepared to open a deal.
2) Then a big candlestick continuing a tendency appears.
3) Execute a trade in the direction of the trend immediately after the closure of this candlestick.
Buying a call after bullish 3-method formation
Buying a put after bearish 3-method formation
As you can see in the pictures the 3-method formation is similar to technical analysis patterns like a flag or pennant.