3 Drive Pattern – Forex Explained

The 3 drive pattern, also called three-drives, is one of the technical traders’ most known reversal patterns. However, it doesn’t occur very often. But on the other hand, it’s very accurate and represents a strong trading signal. It’s very useful for Forex technical traders. But its application goes far beyond. In this article, we will see how to spot three drive patterns. Also, we delve into how to trade using this signal relying on Fibonacci retracement levels in order to determine entry points.

What is 3 drive pattern?

 The three Drives pattern is a harmonic pattern consisting of 5 points. Although not specifically identified, one of the first references to this pattern was described by Robert Prechter in his book “Elliott Wave Principle.” 

Symmetrical price movements that have identical Fibonacci projections in a 5-wave price structure constitute a 3-legged pattern. The presence of this formation on the price chart indicates that there is a probability that the market will change direction in the area where the pattern ends.

• It is a structure formed by 5 waves or price oscillations.
• It is a pattern in which price and time symmetry is essential.
• Points A and B are 61.8% to 78.6% retracements of the previous move.
• Points 2 and 3 are extensions of 127.2% or 161.8% of the previous movement.
• Drives 1, 2, and 3 are symmetrical, as drive 1A and 2B.
• The point where the pattern ends defines an area where the market is likely to change direction. In this area, the trader can look for buying and selling opportunities.

If you see an ABCD pattern that creates another retracement leg instead of reversing, it might be a three-drive pattern on your hands. It represents two overlapping ABCD formations on the technical graph. If you identify the ABCD pattern, you should also easily find the three drives. 

Elliott Wave Theory and 3 drive pattern

Ralph Nelson Elliott originally developed Elliott Wave Theory in 1930 before his theory became more popular with traders and market analysts through the work and publications of Frost and Prechter from 1970.

The central idea of the Eliott waves theory is to consider that the markets evolve according to a trend determined by a series of waves (a rise, then a correction). 

The waves or drives are linked in a recurring pattern that is due to the evolution of the dominant sentiment of investors.

In this sense, the works of Elliott and Charles Dow (at the origin of technical analysis) come together since they both consider that the market always evolves in trend by alternating rising and falling phases.

Developed to predict price movement, the 3 drive pattern helps to give a certain structure to the market and thus enriches your trading thanks to trends.

It helps to identify the main trend of an asset, as well as the different phases of this trend, taking into account the evolution of the psychology of investors to give more options to traders. Mass psychology is the main reason why these patterns often work.

They can thus position themselves in the direction of the trend or against the current, in particular via position trading and swing trading strategies.

In addition, the high or low points of previous waves (depending on the primary trend) allow you to position your protective orders (stop-loss and take-profit) to protect your capital better.

What does the 3 Drive Pattern indicate?

Three drive patterns take the concept of geometric price formation to the next level by using Fibonacci ratios to define precise turning points in the market. 

Trading 3 drive pattern attempts to predict future price movements more accurately based on a series of numerical relationships. 

This concept starkly contrasts the common and most popular methods, which are reactionary rather than predictive of price action. This is where the novelty and growing popularity of harmonic patterns lies.

3 Drive Pattern trading is a system that uses the identification of price patterns and the adjustment of Fibonacci ratios in order to identify exact points of the high probability of trend changes in markets such as Forex, for instance. 

This approach assumes that cycles or patterns in markets, like cycles and patterns, repeat themselves regularly. The key concept consists in determining these trends and opening or closing a position taking into account a high probability of the same historical price action occurring again.

Is the 3 drive pattern reliable?

Although these patterns are not totally accurate, they are price formations that have been regularly proven successful. If these patterns are correctly identified, it’s possible to uncover significant opportunities with fairly limited risk.

It is crucial to note that this pattern trading works on any time frame – intraday, daily, weekly or monthly. Some analysts believe the best opportunities or entry signals appear on the daily charts to open swing trading positions. 

However, on the 1-hour and 4-hour charts, harmonic patterns also identify excellent opportunities for short-term trading or day trading. It is also interesting to note that this method works in the long term. Weekly and monthly charts are excellent for finding historical points where major changes have occurred in financial markets.

How to trade using a 3 drive pattern?

You need to differentiate between various types of cyclical price movements that meet specific conditions in terms of structure and numerical relationships. Price movements represent up and down cycles. 

Like many cyclical processes in life, these movements can be quantified through the relative relationships they present based on Fibonacci ratios and analyzed to define unique technical situations. In this way, trades are executed in areas where the natural rhythm of the Forex market is changing.

It’s also vital for the trader to understand that price drives or different price movements are related to each other. 

Price patterns that are calculated by the alignment of precise relationships provide a way to identify where changes in price direction have a high probability of occurring. When these change points are correctly identified, operations are executed at a level where the cycle changes. 

This trading strategy respects the ebb and flow of buying and selling forces in the market. By doing so, trades that are made using 3 drive patterns are executed “in tune” with the market.

For example, when a stock is bought at a point of a change in market direction, the selling force that drove the price down to that level has reached a point where it is about to run out. Often, techniques with 3 drive patterns identify entry levels that are close to the exact point of the trend change.

How to spot three drives pattern

The three drives pattern is a technical analysis tool that can indicate an upcoming reversal in a market. It consists of a series of higher highs or lower lows that reach a predetermined 127% or 161.8% Fibonacci level. It can provide insight into when it is a good opportunity to buy or sell based on the direction of the market reversal.

Here is how to identify three drive patterns in the bullish and bearish versions.

Let’s first see how to find a bullish three drives pattern. In the graph, you will see the three drives identified with three points. At the first point, the price is low. It’s the first drive. 

Then we have price retracement before making a new low at the second drive and point 2. This second drive needs to be at 161.8 % retracement or 127% retracement, the Fibonacci extension level. Then the price will retrace again, creating a third drive. 

This last drive should also be at 161.8% or 127% of drive two. We pay the most attention to the last drive/wave since that’s the sign to enter the market.

Regarding the bullish three drives chart pattern, we also observe the tree points, i.e., three drives. 

At the first point, the price is high, continuing with retracement before the new high formation at point two. The second high needs to be at 161.8 % retracement or 127% retracement, the Fibonacci extension level of the first drive.

Then we will see the other retracement again up to 161.8 % retracement or 127% retracement. This is the third drive where you should consider a short entry.

3 drive pattern – Forex explained – Conclusion

Three drives pattern is a pattern showing a potential reversal in market trend. It highlights when the trend is exhausted. 

There are two versions of this pattern: bullish and bearish. It consists of three waves on the chart that end at 127% or 161.8% Fibonacci retracement level. It’s a rare but quite reliable signal for entering the trade. Also, it represents two overlapping ABCD formations on the technical graph. 

If you identify the ABCD pattern, you should easily find the three drives too. The pattern is valued by technical traders because trading has a high risk-reward ratio. This pattern is excellent for any market, not only Forex. Also, you can use it for any time frame to find new market opportunities.

3 Drive Pattern – Frequently asked questions (FAQ)

What is a 3 drives pattern?

The three Drives pattern is a harmonic pattern consisting of 5 points. Although not specifically identified, one of the first references to this pattern was described by Robert Prechter in his book “Elliott Wave Principle.” 

Is the three-drive pattern a reliable technical indicator?

If you identify the ABCD pattern, you should easily find the three drives too. The pattern is valued by technical traders because trading has a high risk reward ratio. This pattern is excellent for any market, not only Forex. Also, you can use it for any time frame to find new market opportunities.

How do I trade a 3 drive pattern?

You need to differentiate between various types of cyclical price movements that meet specific conditions in terms of structure and numerical relationships. Price movements represent up and down cycles. Like many cyclical processes in life, these movements can be quantified through the relative relationships they present based on Fibonacci ratios and analyzed to define unique technical situations. In this way, trades are executed in areas where the natural rhythm of the Forex market is changing.

What is the 3 drive Fibonacci pattern?

3 Drive Fibonacci Pattern trading is a system that uses the identification of price patterns and the adjustment of Fibonacci ratios in order to identify exact points of the high probability of trend changes in markets such as Forex, for instance. This approach assumes that cycles or patterns in markets, like cycles and patterns, repeat themselves regularly.

What are three drives to a top pattern?

The three drives pattern is a reversal pattern consisting of a series of higher highs or lower lows that reach a predetermined 127% or 161.8% Fibonacci level.