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3 Drive Chart Pattern-Converted-Protected

The three drives pattern is a reversal pattern characterized by three moves in the same direction, with each subsequent move extending 127% or 161.8% from the previous one based on Fibonacci extensions. It can signal market exhaustion and an impending reversal. The pattern has bullish and bearish versions. Traders look to enter on the third drive, with a stop loss below or above the 161.8% extension and a profit target at the 61.8% retracement of the full pattern swing.

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Gurjeet Hara
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988 views

3 Drive Chart Pattern-Converted-Protected

The three drives pattern is a reversal pattern characterized by three moves in the same direction, with each subsequent move extending 127% or 161.8% from the previous one based on Fibonacci extensions. It can signal market exhaustion and an impending reversal. The pattern has bullish and bearish versions. Traders look to enter on the third drive, with a stop loss below or above the 161.8% extension and a profit target at the 61.8% retracement of the full pattern swing.

Uploaded by

Gurjeet Hara
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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The three drives pattern is a reversal pattern characterised by a series of higher highs or lower

lows that complete at a 127% or 161.8% Fibonacci extension.

It can signal that the market is exhausted in its current move and a possible reversal is about to
occur on the price chart. The bullish version of the pattern can help to identify possible buy
opportunities and the bearish version can help to identify possible sell opportunities.
The three drives pattern is a reversal pattern characterised by a series of higher highs
or lower lows. It has a bullish version and a bearish version.

How to identify the three drives pattern


The chart below illustrates what the bullish version of this pattern looks like:

1. First drive
2. Second drive
3. Third drive

As you can see above, the price makes an initial low at point 1, this is the first drive of the pattern.
Price then retraces before making a new low at point 2, forming the second drive. This second low
should be a 127% or 161.8% Fibonacci extension of the first drive. The price then retraces once
again and makes a third drive down which should also be a 127% or 161.8% Fibonacci extension of
drive two. It is this third drive that you want to pay the most attention to as this is where you are
looking for a long entry.

The next chart shows this pattern as a bearish set up:

1. First drive
2. Second drive
3. Third drive

This time the price makes an initial high at point 1, this is the first drive of the pattern. Price then
retraces before making a new high at point 2, forming the second drive. This second high should
also be a 127% or 161.8% Fibonacci extension of the first drive. The price then retraces once again
and makes a third drive up which should also be a 127% or 161.8% Fibonacci extension of drive
two. It is this third drive that you want to pay the most attention to as this is where you are looking for
a short entry.

How to trade using the three drives pattern


We will now show you how to trade the three drives pattern.
Enter your trade
Traders look to enter the market on the third drive as this offers the most precise entry point with the
greatest profit potential. This will either be a 127% or 161.8% Fibonacci extension. We will use the
bullish three drives pattern as an example. For a bearish three drives pattern (a short/sell trade),
simply invert the pattern and your orders.

Place a buy order here, as below:

1. First drive
2. Second drive
3. Third drive

1. Long entry

As you can see, the price hits the extension level on the third drive down which is where the entry for
the buy trade is placed, in the opposite direction to the most recent overall move.

Place your stop loss


Place your stop loss below the 161.8% Fibonacci extension level of the second drive.
1. First drive
2. Second drive
3. Third drive

1. Long entry
2. Stop loss

Place your profit target


A simple way of finding a profit target is by drawing a Fibonacci retracement from the very high of
the start of the pattern to the very low of the pattern, where the pattern completes the third drive.

The take profit is the 61.8% Fibonacci level of this swing.

See the chart below for an example of this:


1. First drive
2. Second drive
3. Third drive
4. Long entry
5. Stop loss
6. Profit target

Summary
So far, you have learned that ...

• … the three drives pattern is a reversal pattern designed to highlight times when the market
is exhausted in its current move.
• … the pattern has a bullish version and a bearish version.
• … the pattern is composed of three waves or drives that complete at a 127% or 161.8%
Fibonacci extension.
• … the trade is entered in the opposite direction to the overall move, when the third drive is
completed at a 127% or 161.8% Fibonacci extension.
• … the stop loss goes below the 161.8% Fibonacci extension for a buy and above the 161.8%
Fibonacci extension for a sell.
• … draw a new Fibonacci retracement from the start of the pattern to the completion point of
the pattern and take profit at the point where price will have retraced 61.8% of that distance.

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