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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Chart Patterns: After the Buy
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Bulkowski's Three Falling Peaks

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Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 12/11/2017
24,386 56.87 0.2%
10,371 -31.68 -0.3%
763 4.90 0.6%
6,875 35.00 0.5%
2,660 8.49 0.3%
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23.4%
14.7%
15.6%
27.7%
18.8%
Tom's Targets    Overview: 11/30/2017
24,600 or 23,500 by 12/15/2017
9,900 or 10,500 by 12/15/2017
800 or 750 by 12/15/2017
7,100 or 6,700 by 12/15/2017
2,725 or 2,575 by 12/15/2017

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.

My book, Encyclopedia of Chart Patterns Second EditionEncyclopedia of Chart Patterns 2nd Edition book. (pictured on the right), takes an in-depth look at the three falling peaks chart pattern. This formation appears often, not only in the stock market, but in other markets as well. It is a reliable performer that shines in a bear market.

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The chart pattern sports three peaks, each successive one below the last. When price closes below the lowest valley between the three peaks, it confirms the three falling peaks chart pattern as valid (reliable).

The first sign of a trend change from up to down begins with a lower peak, so this chart pattern can be used as an indicator of the start of a bear trend either in an individual stock or the entire market (when it occurs in an index or average). Unfortunately, waiting for the pattern to confirm before exiting a position may mean a loss or large profit give-back, so its use as a bear market indicator is not recommended. Nevertheless, if the pattern appears, it means to avoid long positions.

Important Bull Market Results for Three Falling Peaks

Overall performance rank (1 is best): 8 out of 21
Break even failure rate: 12%
Average decline: 17%
Pullback rate: 59%
Percentage meeting price target: 33%

The above numbers are based on hundreds of perfect trades. See the glossary for definitions.

Three falling peaks chart pattern

The Three Falling Peaks Chart Pattern

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Three Falling Peaks Identification Guidelines

CharacteristicDiscussion
Price trendUpward leading to the pattern then price trends downward.
ShapeThree peaks, each one lower than the last.
SymmetryEach peak should look similar to the others. If you select wide, thick peaks, they should all look that way. The peaks DON'T have to fall along a trendline.
ConfirmationThe pattern confirms as valid when price closes below the lowest valley in the pattern.

Trading Tips for Three Falling Peaks

Trading TacticExplanationThree falling peaks measure rule
Measure Rule
Measure ruleReference the Measure Rule figure to the right. Compute the height from highest peak (1) to lowest valley (2) then multiply it by the above “percentage meeting price target.” Subtract the result from the lowest valley (2) in the pattern to get a price target (3). The link highlighted on the left provides more information on the measure rule.
Valley shortReference the Valley Short figure to the right. For aggressive traders: If the first valley (point A, between peaks 1 and 2) is below the second (point B between peaks 2 and 3), use the second valley (B) as the confirmation price, not the lowest valley (A).
StopPlace a stop slightly above the most recent minor high (point 3) in the three falling peaks chart pattern. If you are unfamiliar with stop placement, click the link to the left.
CoverIf price rises above any of the peaks, then cover the short.Three falling peaks alternate confirmation
Valley Short
Volume shapePatterns with U-shaped volume perform best. Click the link to the left for information on volume shapes, and click here for performance information.
Breakout volumePatterns with light breakout volume tend to perform well. The link to the left lists chart patterns by light breakout day volume.
PullbacksPullbacks hurt performance. The link to the left provides more information about pullbacks and this link provides performance.
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Three Falling Peaks Example

Three falling peaks chart pattern example

The above figure shows an example of the three falling peaks chart pattern. Peaks 1, 2, and 3 mark the outline of the chart pattern. Point 4 is the confirmation price, the price at which squiggles on the stock chart become a three falling peaks chart pattern.

Taking the height from peak 1 (the highest high in the three falling peaks chart pattern) and valley 4 (the lowest low between the three peaks), multiplying it by 33% (the percentage meeting price target from Important Bull Market Results table) gives a target of about 76. When the stock opened after the company issued an earnings warning, price gapped lower and reached the target the same day. Basing a new target on the full height (point 1 minus point 4, subtracted from point 4) gives a target of about 69. The stock reached that target within the month.

-- Thomas Bulkowski

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See Also

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. Born free. Now I'm expensive.