INTERMEDIATE
Three drive pattern
Three drive pattern
If you see an ABCD pattern that creates another retracement leg instead of pulling back, you might have a Three Drive pattern on your hands.
- What is the three drive pattern?
- Finding the three drive pattern
- Trading the three drive pattern
- Information sheet for the three drive pattern
What is the three drive pattern?
The Three Drive pattern is a rare price model that consists of three consecutive movements in the same direction, either upwards or downwards. In the bullish version of the pattern, the market makes three final attempts to reach lower levels before transitioning into an uptrend. Conversely, in the bearish version, the market reaches a peak and then begins to decline.
This pattern consists of two overlapping ABCD patterns. If you can identify the classic ABCD pattern, recognizing the Three Drive pattern should be relatively easy.
Although this pattern doesn't appear very often, its presence can indicate a strong likelihood of an upcoming market reversal. This model is highly valued among traders because it offers trades with an excellent risk-to-reward ratio and potential profits.
Finding the three drive pattern
To identify the Three Drive, focus on searching for the ABCD pattern, where there is an additional leg. You can think of it as the ABCDEF pattern, which includes the fourth move, creating the Three Drive.
When searching for a Three Drive pattern, it's essential to be exceptionally cautious. Ideally, the pattern should be immediately clear. If it’s not, you may not have found the true Three Drive.
Similar to the ABCD pattern, the Three Drive pattern can be confirmed using Fibonacci ratios.
The mechanics of the CD and EF moves should correspond to the 127.2% or 161.8% extensions of the BC and DE retracements. The BC and DE retracements should typically be 61.8% or 78.6% of the previous leg.
Symmetry is also crucial for the Three Drive pattern. The timing of the retracements and moves should be symmetrical. If this is not the case, it means that you have not identified a valid Three Drive pattern.
Trading with the three drives pattern
The Three Drives pattern can be traded similarly to the ABCD pattern. Wait for the final move to complete, and then focus on trading the reversal that should follow. If the market reaches a low, open a buy position; if it reaches a high, sell.
The third move should mirror the previous one, helping you determine when the market is likely to reverse. Based on this, plan your entry point accordingly.
Watch for any significant gaps or interruptions while the pattern is forming. These could indicate that the pattern may not be valid. If you notice something like this, wait for further confirmation that the reversal is indeed close.
If the pattern does not behave as expected, it is possible that the market will continue in the original trend.
