It’s one of the powerful harmonic chart formations that will allow a trader to spot potential reversal zones in the market. A seasoned trader or even a beginner can walk through it in this guide about identification, trading, and profit maximization from the Three Drives Pattern.
What is the Three Drives Pattern?
The Three Drives Pattern is a harmonic reversal chart formation comprising three symmetrical price movements. It appears in both bullish and bearish forms and provides traders with reliable signals to either buy or sell based on the market’s directional bias.
Key Features of the Pattern
- Three consecutive price drives.
- Symmetry between price movements.
- Reliance on Fibonacci retracement and extension levels.
Traders use this pattern to highlight potential reversals, giving ample opportunity for going long while the scenario is bullish or going short while in a bearish setup.
How to Detect the Pattern of Three Drives
Accurate discovery of this pattern is pertinent to how it will most likely prove useful. That said, here’s how to look for the pattern:
Look for the Three Symmetrical Drives
- Identify three unique moves in the price action.
- For a bullish setup, each drive will take prices lower before reversing.
- For a bearish setup, each drive will reach a higher high before reversing.
Apply Fibonacci Levels as Confirmation
- Each drive intersects with significant Fibonacci levels.
- The second swing low (or high) hits the 127.2% Fibonacci extension of the preceding retracement.
- The third swing low (or high) corresponds to the 161.8% Fibonacci extension of the second retracement.
Spot Reversal Zones
- Keep an eye on the final drive because this is where the pattern is usually completed and the reversal begins.
Symmetry and Timing
- The drives must be roughly symmetrical in terms of time and price action.
How to Trade the Three Drives Pattern
Trading the Three Drives Pattern consists of three main steps:
1. Enter the Market
- Wait for the pattern to complete at the third drive.
- Look for additional confirmation, such as a breakout candle, a divergence on the MACD, or other technical indicators.
- Enter the trade after the breakout in the opposite direction of the third drive.
2. Set Your Stop Loss
- Place the stop loss slightly below the third drive in a bullish setup or above the third drive in a bearish setup.
- This way, you will be protected in the event that the pattern doesn’t work.
3. Set Profit Targets
- Determine your profit targets through the height of the pattern or Fibonacci extension levels.
- For example, a 161.8% extension of the entire pattern in Fibonacci can be a perfect profit zone.
Advantages and Disadvantages of the Three Drives Pattern
Advantages
- Readily Identifiable: Once one understands the pattern, identifying it is not difficult at all.
- Profitable: It can bring good amounts of returns when traded.
- Clearly Defined Risk and Reward: Clearly shows entry and exit.
Disadvantages
- Seldom Happens: This pattern is rarely found on all currency pairs.
- Expensive at Higher Time Frames: Wide stop-loss zones can increase the cost of trading in daily or weekly charts.
- Ineffective on Low Time Frames: High time frames such as 1 minute or 5 minutes will not be very reliable as signals may become compressed.
Three Drives Pattern Conclusion
- The Three Drives Pattern is a harmonic chart formation made of three consecutive price drives with measured retracements.
- It acts as a leading reversal indicator which signals opportunities to buy or sell counter-trend.
- Fibonacci retracements and extensions are of importance in confirming the pattern.
- The bullish pattern emerges when the trend is down, and the bearish pattern develops in an uptrend.
- The trader should await confirmation before entering the trade and should manage the risks by setting proper stop-loss and profit targets.
Conclusion
The Three Drives Pattern is a great tool used to identify and capitalize upon market reversals. Indeed, it requires patience with a keen eye for observation, but mastering this pattern can greatly enhance your trading strategy.
For more ideas and in-depth tutorials on this and other topics, join the HowToTrade Trading Academy and explore fitting this pattern into your overall trading methodology.
