The Three Drives patterns is one of the most powerful setups:
Bullish Three Drives pattern:
1)First wave is a normal bearish wave.
2)Followed by first pullback wave (shouldn't exceed 0.9 of 1st bearish wave).
3)Then Second bearish wave that extends beyond the first bearish wave low and reach between 1.27 and 1.618 Fibonacci extension for the first pullback wave. (Note that if the price drops below 1.618 but doesn't close a candle below it, then it is considered 1.618 extension ).
4)Then followed by a second pullback wave. (shouldn't exceed 0.9 of 2nd bearish wave).
5)Then the most important wave is the third bearish wave, which extends beyond the second bearish wave low. At this point you should be ready to monitor the price from 1.27 to 1.618 extension for the second pullback wave. This area it is called the PRZ(Potential Reversal Zone). Expect an upside rebound at this area.
Note: Symmetry increases the reliability of the pattern: If the 2nd bearish wave extends 1.27 for the first pullback wave, expect the third bearish wave to complete also at 1.27 for the 2nd pullback wave. This is the ideal and best case, but note that sometimes we can have different extensions and it will also work.
Final step: add a confirmation tool like the hammer candlestick pattern at the PRZ before going long.
EXAMPLE ON CHART:
Typically, as i mentioned above, the first and second extensions should be somewhere from 1.27 to 1.618. There are some variations which i wont discuss in this post.
In this case the price dipped below the 1.27 extension level but failed to close candles below it. At the third wave, the price hit the 1.27 extension and formed a long lower shadow candle, suggesting buying interest and confirm out trade.
Entry should be put at the 1.27 extension level following the closing the of confirmation candle.
The above are my own personal observations and conclusions.
Best Regards,
Technician
Bullish Three Drives pattern:
1)First wave is a normal bearish wave.
2)Followed by first pullback wave (shouldn't exceed 0.9 of 1st bearish wave).
3)Then Second bearish wave that extends beyond the first bearish wave low and reach between 1.27 and 1.618 Fibonacci extension for the first pullback wave. (Note that if the price drops below 1.618 but doesn't close a candle below it, then it is considered 1.618 extension ).
4)Then followed by a second pullback wave. (shouldn't exceed 0.9 of 2nd bearish wave).
5)Then the most important wave is the third bearish wave, which extends beyond the second bearish wave low. At this point you should be ready to monitor the price from 1.27 to 1.618 extension for the second pullback wave. This area it is called the PRZ(Potential Reversal Zone). Expect an upside rebound at this area.
Note: Symmetry increases the reliability of the pattern: If the 2nd bearish wave extends 1.27 for the first pullback wave, expect the third bearish wave to complete also at 1.27 for the 2nd pullback wave. This is the ideal and best case, but note that sometimes we can have different extensions and it will also work.
Final step: add a confirmation tool like the hammer candlestick pattern at the PRZ before going long.
EXAMPLE ON CHART:
Typically, as i mentioned above, the first and second extensions should be somewhere from 1.27 to 1.618. There are some variations which i wont discuss in this post.
In this case the price dipped below the 1.27 extension level but failed to close candles below it. At the third wave, the price hit the 1.27 extension and formed a long lower shadow candle, suggesting buying interest and confirm out trade.
Entry should be put at the 1.27 extension level following the closing the of confirmation candle.
The above are my own personal observations and conclusions.
Best Regards,
Technician