# 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. The three drives is a reversal pattern of the family of harmonic patterns that predicts trend reversal with higher accuracy. Analysts connect a series of higher highs and lower lows, occurring between 127 and 161.8 percent of the Fibonacci ratio, forming the three drives pattern.

## 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 Fibonacci levels of both patterns are different.

## How to use the Three-Drive pattern?

The three drive chart pattern is a formation of three consecutive symmetrical price movements. It is classified as a harmonic reversal pattern and comes in two forms: bullish and bearish. Currency traders use the three drives to identify potential reversal zones in the live forex market. Upon doing so, it becomes possible to enter the market to the long (buy) or short (sell).

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.

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.

While they don’t appear often, three-drives can signal a high chance of an impending market reversal. The resulting trade tends to have a very strong risk-reward ratio, so the pattern is prized by technical traders. To find a three-drive, simply look for an ABCD with an extra leg – it might be useful to think of it as an ‘ABCDEF pattern’.

• 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 is a rare price pattern formed by three consecutive symmetrical ‘drives’ up or down. In its bullish form, the market is making three final drives to a bottom before an uptrend forms. In a bearish three-drive, it is peaking before the bears take over.

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. 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.

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