The “Three Valleys and A River” pattern is similar to the “Three Hills and A Mountain” pattern but in a reverse sense, and it is also similar to the “3-Drives (bullish)” pattern. The “Three Valleys and a River” pattern is very rare, but it is also very reliable pattern. It does have 3 distinct valleys as prices making three thrusts to go up and succeed in the third attempt. Usually this pattern occurs near the market bottoms. The “Three Valleys and a River” pattern further supports Fibonacci ratios among the three drives. Each valley retraces to a minimum 0.5 to 0.618 Fibonacci ratio of its height before expanding into the next valley. After completion of three valleys, a trend line is drawn connecting the top of the three valleys. Prices closing above the trend line signal a “long” trade. After completion of 62% of the previous range, it has another significant reversal to the downside (River).

Trade: The “Three Valleys and a River” pattern presents two trade setups. First trade: A close above the trend line signals a reversal. Enter a “long” trade one-tick above the high of the breakout bar. Second Trade: After completion of 62% of the AB range, enter a “short” trade at point “C.”

Target: Target setups for the above two trades. The first trade setup is “long” from the three valleys. For this trade setup, set a target at 62% to 78% of the AB range. The second trade results in 100% of the AB range retracement from point “C.”

Stop: For the first trade, if prices close below the trend line, close the trade. For the second trade, if prices close above level “C”, close the trade.

Trading Three Valleys and A River

Trading Three Valleys and A River Pattern

The example above shows a “Three Valleys and a River” pattern from the ZLC weekly chart. ZLC established a 3-Valley pattern from July, 2005 to April, 2006. A trend line is drawn the connecting the tops of three valleys. In June 2006, ZLC closed above the trend line to confirm a “long” trade.

  1. Enter a “long” trade above the high of the breakout bar from the trendline.
  2. Place a “stop” order few ticks below the trend line.
  3. Target 62% of the range between the top of the first valley to the bottom of the third valley.

Trading Three Valleys and A River

Trading Three Valleys and A River Pattern

The chart above illustrates an example of “Three Valleys and A River” pattern from Tyco’s (TYC) weekly chart. From April 2005 to October 2006, TYC formed three “valleys” and attempted to rise three times beyond $30. A trend line is drawn in the chart above connecting the three valley tops for a trade setup. In October 2006, Tyco closed above the trend line to signal a potential long setup.

  1. Enter a “long” trade above the high of the breakout bar at $27.
  2. Place a “stop” order below the trend line to protect the trade at $25.5.
  3. Place a “target” at the 62% range of the all three valleys.
Advertisement