Despite what people may think, three-drives are actually a reversal pattern. Although this initially looks bearish
, and it is, it's safer to trade it upon confirmation. Once completed, three drives
indicate exhaustion of a trend, and can be played similarly to most other harmonic patterns
. What we look for is three consecutive price swings in the same direction, in this case downwards. Each push down should be a 1.272-1.618 fib extension of the previous rally/correction. Each correction should retrace roughly 61.8% of the previous push down. Here we can see that we are clearly in the range having two falloffs, the last of which meets the requisite 1.47 fib extension. If this were to play out, we would expect a third leg down between $500 and $300. If price reaches this low and finds support it would be a potential buy signal, with the target being 61.8% of the cumulative downward move, putting our sell targets between $950 and $1050. Stop losses could be set below the 1.618 fib extension.
I always like to have at least two signals pointing to similar targets, and it just so happened that the daily 200 SMA
lines up pretty spot on with our higher, 1.272, fib target. We've also broken below and are currently sitting under the 50 EMA's resistance, a possible indication of bearish
continuation in the short-term. We would need to break the 200 EMA
support before setting our sites on the 200 SMA/harmonic target.
All in all, a pretty safe trade. I encourage you to always do your own due diligence and trade responsibly.
*THIS IS NOT TRADING ADVICE*