How to identify the three drive pattern

Three Drives Pattern is one of the strongest reversal patterns, it is traded against the trend when the price is approaching point D. It is almost the same as the A_B_C_D only that, It has three legs instead of two known as drives. And two retracements/corrections instead of just one.

It gets its name for the 3 peaks marking the attempts of the exhausted market to continue trend. Because it signals trend reversal, it always  forms at the end of a trend.

First, let’s start with the typical characteristics.

Take  a look at the illustration below;

  • Point A should be no more than 0.618  fibonacci retracement of Drive 1(peak 1)
  • Drive 2 should be 1.272 extension of retracement A of the Drive 1.
  • Point B should be 0.618 retracement of Drive 2
  • Drive 3 should be 1.272 extension of retracement B of Drive 2.

How to trade a 3 Drive pattern on a market price chart

Below is a price chart with a Bullish 3 Drive pattern

From our example above, the Buy entry signal is at D. The stop loss is placed few ticks below the farthest possible D level. The safe target lies within A and B retracements. The most important point to ensure is to have a favorable risk reward ratio. Entries with low risk/reward has to be taken cautiously or discarded altogether.

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