Three drive pattern guidelines (PDF)
The 3 Drives Pattern is a technical analysis tool used among professional traders to decide whether they should enter or exit the market. This pattern has the same shape as the ABCD Pattern but has different characteristics and a simpler structure. Furthermore, this pattern is constructed using the forex price fluctuations of a certain asset in a certain period. Also, this pattern is easy to detect and identify but, it’s an unusual pattern that appears rarely on the chart. More precisely, at the end of a trend.
Three drive pattern guidelines
What is a 3 Drives Pattern?
The 3 Drives Pattern also known as the “3 Drives Harmonic Chart Pattern” is a price-following pattern that indicates a potential upcoming reverse in trend. Unlike others, it’s an easily identifiable pattern that attracts the eyes. However, it rarely appears which makes it reliable, in other words, a golden trading opportunity.
In addition to its unique characteristics, this pattern indicates if the market is exhausted or not. In other words, it only appears at the end of a long trend, either downtrend or an uptrend. By forming a series of forex higher highs or lower lows.
What is the purpose of 3 drives pattern ?
The main purpose of this pattern is to look for similar successive price fluctuations. And it is constituted of 5 successive waves that are divided into 2:
- Impulsive waves that are called legs or drivers that go in the same direction, have the same length, and have an almost identical time interval of occurrence. In other words, three successive and almost identical attempts by the market participants to either lift or push down the price to attain a targeted price. Which in turn if succeeded, are called the 3 drives pattern.
- And, retracement waves also known as corrections because the prices can’t go up or down straightly without either bear or bulls taking action.
Generally speaking, the impulsive waves are in the majority of cases, caused by institutional investors, those who tend to trade in high volume. And the retracement waves are in turn caused by other traders that are trying to get a profit or reduce their losses.
As with any other pattern, the 3 drives pattern has 2 forms, a bullish form, and a bearish form. In the next section, we’re going to talk in detail about these 2 forms and how to trade them.
How do you trade with three drive pattern?
As we stated earlier, the 3 drives pattern is easy to detect, thus, the trading strategies will be simpler. However, these strategies will require using the Fibonacci Retracement levels which are considered “hidden” support and resistance levels. [You can check our course on the Fibonacci Retracement levels here]. Anyways, as a summation, the Fibonacci retracements are a measure of price movements. The retracement levels are [23.6% / 38.2% / 61.8% / and 78.6%]. These levels are horizontal lines on the chart that indicate the % of the prior move in price.
Once signs that the 3 Drives pattern starts forming, the 1st thing to do is to observe the current major trend. A trader should identify whether the current trend is bullish or bearish which leads us to 2 cases.
Down direction scenario
This means that the pattern will signal a potential upcoming uptrend. In this case, only a long position or swing trading is advised.
But before entering the long position or starting swing trading, the trader must be sure that what he’s observing is the 3 drives pattern.
A few simple steps could verify this pattern:
- The 1st retracement wave following the 1st impulse wave should be at a 61.8% level.
- The 2nd retracement wave should also be at the 61.8% level while the 2nd impulse wave should be around 127%.
- Same goes for the 3rd impulse wave.
Once the pattern is verified, you can enter the position at any point because as we stated earlier, this pattern is extremely reliable and there is no fear of misfunctioning. Although, it’s recommended to enter at the nearest possible opportunity to lock in the highest possible profit.
Up direction scenario
In this case, a downtrend is on the horizon, which allows a golden trading opportunity. But this is an extremely risky operation, thus, the trader must be sure that what he’s observing is a true 3 Drives Pattern. The Same verification method stated earlier is valid for both bullish and bearish trends.
Once the pattern is verified, a trader can enter a short position knowing that the price of the asset is going to crash which allows him to secure an enormous gain. It is advised to enter the short position while the price is still high so the benefit from the spread is also high.
Bullish 3 Drives Pattern example
The Bullish 3 Drives Pattern usually comes after a long sharp downtrend where prices have significantly fallen. This pattern is an indication that the current trend is about to end and an uptrend is coming soon. The structure of the pattern is not that sophisticated.
How the bullish pattern constructed ?
It’s constructed with 3 short downtrends and 2 uptrends as a correction. The uptrends are visible at points A and B while the downtrends are visible at points 1,2, and 3 from which the pattern name was extracted. Furthermore, both points A and B appear at the Fibonacci level of 61.8% while points 1,2, and 3 appear at the Fibonacci level of 127%.
During a bullish 3 Drives Pattern, the price goes up, and the retraces 2 times, these retracements are making new lower lows before arriving at the big jump.
On the other hand, point 1 should be above point 2, and point 2 in turn should be above point 3. The space between the 3 points doesn’t matter as long as they’re making new lower lows. Also, Points A and B are the peaks where bulls are trying to lift the prices. Point A placed above point B which shows that the bulls have failed in lifting the price. They are probably gathering to fix the underestimated value of the asset.
Bearish 3 Drives Pattern example
The Bearish 3 Drives Pattern usually comes after a long towering uptrend where prices have significantly increased. This pattern is an indication that the current trend is about to end and a downtrend is coming soon. The structure of the pattern is not that sophisticated.
How the Bearish pattern constructed ?
It’s constructed with 3 short uptrends and 2 downtrends as a correction. The forex downtrends are visible at points A and B while the uptrends are visible at points 1,2, and 3 from which the pattern name was extracted. Furthermore, both points A and B appear at the Fibonacci level of 61.8% while points 1,2, and 3 appear at the Fibonacci level of 127%. During a bearish 3 Drives Pattern, the price goes up3 times making new higher highs, and then retraces 2 times before making the deep fall.
On the other hand, point 1 should be below point 2, and point 2 in turn should be below point 3. The space between the 3 points doesn’t matter as long as they’re making new higher highs. Also, Points A and B are the forex bottoms where bears are trying to push down the prices. Point A placed below point B which shows that the bears have failed in pushing down the price and are probably gathering to fix the overestimated value of the asset.
- The 3 Drives pattern is a trend reversal sign.
- The Bullish pattern indicates possible entry points while the bearish pattern indicates exit points.
- This pattern could be used to either speculate or enter a short position or a long position.
- The 3 Drives pattern is constructed with short-term impulses and retracements.
- The pattern trading strategies are based on the Fibonacci retracement levels.