# What Is The Three-Drive Pattern & How To Trade With It

The Three-Drive pattern is a Harmonic pattern that defines a potential reversal. The pattern was first mentioned in Robert Prechter’s book, “Elliot Wave Principle.” Later, Scott Carney modifies Three-Drive with Fibonacci ratios.

## What is the Three-Drive pattern?

The structure of the Three-Drive differs from other patterns. It has only three legs rather than four legs, which is a commonality in Harmonic patterns.

The pattern develops between three points (A, B, and C) and drives 1,2, and 3. The price moves between these drives forming highs and lows, defining a consolidation phase. Scott Carney described it as a 5-wave structure.

This is what the pattern looks like:

Each part of the pattern is linked with Fibonacci ratios. These ratios mark large retracements and projections.

Traders need to follow a few rules to identify Three-Drive on a chart. They are:

• Point A should retrace the first drive at 61.8%.
• Point B should retrace the second drive at 61.8%.
• The second drive should extend point A at 1.272.
• The third drive should extend point B at 1.272.
• The time of the price should be equal between the second and the third drive.
• Point A and B should retrace at an equal time.

The third drive represents the completion of the pattern, and this is where traders take their positions.

Traders often confuse Three-Drive with the ABCD pattern. However, the ABCD pattern has four legs instead of three. Also, the Fib levels of both patterns are different.

## How to use the Three-Drive pattern?

Traders apply Three-Drive’s bullish and bearish version for taking their positions.

### a. Bullish Three-Drive

The bullish Three-Drive occurs in a downtrend and presents a reversal at the third drive. Traders take long positions at the third drive, and stop-loss is set below the third drive.

### b. Bearish Three-Drive

The bearish Three-Drive appears in an uptrend and signals a trend reversal. Traders take short positions at the third drive, with stop-loss placed above the third drive.

An aggressive trader may take his/her positions at point B. However, one should be careful about this. This is because the Three-Drive can sometimes produce false signals. In this case, instead of a reversal, the price would move in a similar direction.

For example, a trader thinks he/she has spotted a bullish Three-Drive but rather a reversal, the price moves with the trend.

But for every problem, there is a solution. To filter Three-Drive’s false signals, traders can apply other technical indicators to find the trend’s direction. An indicator one could choose to use along the Three-Drive pattern is the Zig-Zag Indicator. This indicator can help the trader to spot market highs and lows.

A keynote to remember is the Three-Drive can be more suitable to some trading strategies on trending markets rather than on ranging markets. If there is a slight hint of ranging markets, traders may wish to wait. But again, it depends on the individual trader.

## Three-Drive trading strategy

The Three-Drive can surface on any timeframe. Therefore, traders can take full advantage of it. However, some traders believe that the higher the timeframe, the more reliable the Three-Drive pattern would be. This may not be the case depending on the complete forex strategy being used.

### Three-Drive buy strategy

• Locate the pattern in a downtrend.
• Wait for the price bar to go bullish before entering.
• Enter the trade on the third drive.
• Place a stop-loss near the recent low from the third drive.
• Exit the trade before the price drops.

### Three-Drive sell strategy

• Look for the pattern in an uptrend.
• Wait for the price bar to go bearish before entering.
• Enter the trade on the third drive.
• Place stop-loss above the recent high form the third drive.
• Exit the trade before the price rises.

## Three-Drive pattern conclusion

The Three-Drive Pattern is a a helpful indicator of a trend reversal that can be used on your trading platform charts to help filter potential trading signals as part of an overall trading strategy.

I would prefer to use the majority of candlestick patterns such as the Three-Drive Pattern on the 1-hour charts and above. I tend to find that these charts contain less market noise than the lower time frames and thus give more reliable signals for my forex trading strategies. This also means that I spend less time staring at charts and can also set alert notifications to let me know when price has reached certain levels, candlestick pattern has been formed or a particular indicator value has been reached.

The Three-Drive Pattern is just one method of market analysis amongst thousands. I would not build a trading system alone, but rather combine with other technical indicators such as moving averages, Parabolic SAR, Stochastic Oscillator, RSI, ADX and price action analysis.

Of course, every trading system will generate false signals which is why money management is so important. I would personally be implementing sensible money management and only take traders that give me a favorable risk to reward ratio, ideally of at least 1:3. This means that one losing trade does not wipe out consecutive winners.

The methods of implementing the Three-Drive Pattern into a trading strategy that are outlined within this article are just ideas. I would always ensure that I have good money management, trading discipline and a trading plan when using any forex strategy.

Furthermore, I would combine multiple technical analysis, fundamental analysis, price action analysis and sentiment analysis to filter all entries. You should trade forex in a way that suits your own individual style, needs and goals.

If you would like to practice trading with the Three-Drive Pattern, you can open an account with a forex broker and download a trading platform. If you are looking for a forex broker, you may wish to view my best forex brokers for some inspiration.

Happy trading!