As of 07/19/2019
Industrials: 27,154 68.77 0.3%
Transports: 10,604 +66.69 +0.6%
Utilities: 820 11.25 1.4%
Nasdaq: 8,146 60.75 0.7%
S&P 500: 2,977 18.50 0.6%

YTD
+16.4%
+15.6%
+15.0%
+22.8%
+18.7%

26,500 or 28,000 by 08/01/2019
10,000 or 11,000 by 08/01/2019
850 or 800 by 08/01/2019
7,950 or 8,500 by 08/01/2019
2,900 or 3,075 by 08/01/2019

As of 07/19/2019
Industrials: 27,154 68.77 0.3%
Transports: 10,604 +66.69 +0.6%
Utilities: 820 11.25 1.4%
Nasdaq: 8,146 60.75 0.7%
S&P 500: 2,977 18.50 0.6%

YTD
+16.4%
+15.6%
+15.0%
+22.8%
+18.7%

26,500 or 28,000 by 08/01/2019
10,000 or 11,000 by 08/01/2019
850 or 800 by 08/01/2019
7,950 or 8,500 by 08/01/2019
2,900 or 3,075 by 08/01/2019
 
Released 2/26/2013.
I found out about the inverted 3LR pattern from an article in Traders.com (a printed magazine, not the website) and according to the author Paolo Pezzutti, it's based on the work of Michael Harris.
The article suggests using a 7% profit target and 7% stop loss, which I tested. I also tested placing a stop at the other end of the pattern (for a downward breakout, for example, it would be a penny above the pattern's highest high). One can infer that inverted 3LR means the opposite of three lows and a reversal, which aptly describes the fourbar pattern (three highs and a reversal).
Inverted 3LR

Important Bull Market Results for Inverted 3LROverall performance rank (1 is best)**: 10/23
Break even failure rate*: 46% (down breakouts)
Average drop*: 6%
Percentage meeting price target*: 45%
The above numbers are based on hundreds of perfect trades as of 2/26/2013. See the glossary for definitions.
* Based on the trend low, not the ultimate low. See text.
** Based on the average drop compared to other small patterns with downward breakouts in a bull market

Characteristic  Discussion 
4 bars  The pattern is composed of four bars, three highs and a reversal bar. 
Higher highs  Look for two consecutively higher highs (using 3 bars) on the daily chart. It doesn't matter what the low prices of these bars look like, only that each high is consecutively higher than the prior high. 
Lower low  The last bar in the pattern has a low that is below the first bar in the pattern. It doesn't matter at what price the high is on this bar. 
Trading Tactic  Explanation 
Reversal  The pattern acts as a reversal pattern 52% of the time. In other words, the direction after the pattern completes is about random. 
Trade continuations  Inverted 3LRs acting as continuations outperform those acting as reversals of the shortterm trend. That means look for price to drop leading into the inverted 3LR (drops averaged 7% for continuations versus 6% for reversals). The trend was the same in bear markets (14% versus 13%, respectively). 
Short  Short at the open the day after the last bar in the pattern. 
Measure rule  The Inverted 3LR fulfills the measure rule 45% of the time (bull market). That is, measure the height of the pattern and subtract it from the low price to get a downward target. 
For the following statistics, I used 1,243 stocks, starting from December 1989 to February 2013, but few stocks covered the entire range. All stocks had a minimum price of $5. Since samples were so numerous, I chose one of every four patterns. There were two bear markets in the 2000s (as determined by the S&P 500 index), from 3/24/2000 to 10/10/2002 and 10/12/2007 to 3/6/2009. Everything outside of those dates represents a bull market.
For each inverted 3LR, I found where the trend started and when it ended. To find the trend peak or valley, I found the lowest valley and highest peak within plus or minus 10 days (21 days total) each, before the inverted 3LR and the same peak/valley test after the inverted 3LR. The closest valley or peak before the inverted 3LR is where the trend began. The closest peak or valley after the inverted 3LR is where the trend ended. I compared the peak or valley to the average of the highest high and lowest low price of the inverted 3LR pattern.
The 10bar peak or valley number tends to find major turning points on the daily charts.
I measured performance from the day after the pattern ended to the nearest trend peak or trend valley.
Market  5% Failure  Average Drop 
Bull  46%  6% 
Bear  29%  14% 
Table 1 lists the failure rates, sorted by market condition along with the average drop. Since the inverted 3LR is supposed to act as a reversal of the upward trend, I assumed a downward breakout (downward move).
A failure occurs when the stock fails to drop more than 5%.
The failure rates may appear high, but that's typical for shortterm patterns like the inverted 3LR. The highest failures occur in a bull market: 46% fail to drop at least 5%. The average drop is just 6%.
Market  Success 
Bull  45% 
Bear  53% 
Table 2 shows how often the measure rule works. Use the measure rule to find an estimate of how far price is likely to drop.
To do this, measure from the highest high to the lowest low in the pattern to get the height. Subtract the height from the lowest low to get the target.
The best performance of the measure rule occurs in a bear market, with 53% of patterns reaching their target.
Market  Bull  Bear 
Net profit/loss  $(72.32)  $52.46 
Wins  44%  52% 
Winning trades  7,538  2,565 
Average gain of winners  $744.42  $759.37 
Losses  56%  48% 
Losing trades  9,757  2,343 
Average loss  ($703.31)  ($721.43) 
Average hold time (calendar days)  25  14 
Table 3 shows the performance based on 22,203 trades using $10 commissions per trade ($20 round trip), starting with $10,000 per trade. No adjustments were made for interest, fees, slippage and so on.
The results are sorted by bull or bear market. The trades used the same setup as listed in Inverted 3LR Performance Statistics. This test sold short a stock at the open the day after the pattern completed. If the opening price was unavailable (in my database, many from the 1990s were 0), then I assumed a penny below the bottom of the pattern as the entry price.
A position was covered if the stock dropped at least 7% below the entry price. Again, if the opening price was lower than the target price, I used the open otherwise I used the target price. A stop was placed 7% above the entry price.
For example, in a bull market, the net loss was $72.32 for all trades. The method won 44% of the time and there were 7,538 winning trades. The average gain of winning trades was $744.42.
Fiftysix percent, or 9,757 trades were losers. They lost an average of $703.31.
The average hold time was 25 calendar days.
Notice how the gains and losses were pegged near 7%, which is how the test was setup.
Market  Bull  Bear 
Net profit/loss  $(22.17)  $39.84 
Wins  34%  47% 
Winning trades  5,903  2,295 
Average gain of winners  $722.89  $744.64 
Losses  66%  53% 
Losing trades  11,433  2,614 
Average loss  ($406.85)  ($578.95) 
Average hold time (calendar days)  13  9 
Table 4 shows the results of 22,246 trades, but this time, I used a penny above the top of the inverted 3LR pattern as a stop instead of a 7% stop.
For example, in a bull market the net loss was $22.17 for all trades. The method won 34% of the time and there were 5,903 winning trades. The average gain of winning trades was $722.89.
Sixtysix percent, or 11,433 trades were losers. They lost an average of $406.85.
The average hold time was 13 calendar days.
When compared to the 7% stop method, placing a stop above the top of the pattern showed that losses dropped substantially, especially in a bull market. However, the win/loss ratio suffered and that impacted the net gain.
The figure shows an inverted 3LR pattern in 3M (MMM) on the daily scale.
The Inverted 3LR looks like the inset with three higher highs followed by a low below the first low in the inverted 3LR.
The four bar pattern ends the day before A. Sell short at the open at A, which is at a price of $91.92. The target is 7% below this, or $85.49.
The stock drops and hits the sell target as shown in the chart, at B.
A stop is placed 7% above the open, or 98.35 (not shown).
If the pattern stop method were used, the red line at C, which is a penny above the top of the inverted 3LR, would serve as the stop location.
 Thomas Bulkowski
Below are other short patterns...
Q: What do men and beer have in common? A: They are both empty from the neck up.