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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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Bulkowski’s Three Rising Valleys

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Busted
Patterns
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Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 03/22/2017
20,661 -6.71 0.0%
8,987 56.53 0.6%
705 3.46 0.5%
5,822 27.81 0.5%
2,348 4.43 0.2%
YTD
4.5%
-0.6%
6.8%
8.1%
4.9%
Tom's Targets    Overview: 03/14/2017
21,250 or 20,600 by 04/15/2017
9,500 or 8,700 by 04/15/2017
675 or 715 by 04/01/2017
5,950 or 5,650 by 04/15/2017
2,425 or 2,325 by 04/15/2017
Mutt Losers: None YTD
Mutt Winners: None YTD

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.

The three rising valleys chart pattern is one you will often see in the stock market and other markets. The reason for this begins with the rules for identification, where almost any three rising valleys qualify for a valid pattern. It is slightly more complicated than that with each succeeding valley resting above the prior one and the three valleys appearing similar. But beyond that, anything goes.

Based on test results discussed in my book, Encyclopedia of Chart Patterns Second EditionEncyclopedia of Chart Patterns 2nd Edition book. (pictured on the right), the chart pattern is a decent performer in a bull market. It confirms as a valid chart pattern when price closes above the highest peak in the pattern.

Since every trend change from down to up has to post a higher low, this pattern can signal a trend change when three higher lows appear. This type of "inside information" can be invaluable to traders, but just remember that the turn upward may not last long. In a bear market, the rise is just over half what it is in a bull market (22% versus 41%, respectively). And by the time the third bottom appears and the pattern confirms, price may be a long way from the bottom.

Important Bull Market Results for Three Rising Valleys

Overall performance rank (1 is best): 4 out of 23
Break even failure rate: 5%
Average rise: 41%
Throwback rate: 60%
Percentage meeting price target: 58%

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

Three rising valleys chart pattern
Three rising valleys

Three Rising Valleys Identification Guidelines

CharacteristicDiscussion
Weekly or dailyThe pattern appears on either the daily or weekly chart.
Price trendUsually upward leading to the pattern.
ShapeLook for 3 rising valleys – each valley must be above the prior one.
ProportionalEach valley should look similar. Select all narrow ones or all wide ones, all short, or all tall. Don’t mix them.
VolumeTrends downward 67% of the time.
ConfirmationThe pattern confirms when price closes above the highest peak the pattern.
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Three Rising Valleys Trading Tips

Trading TacticExplanationThree rising valleys measure rule
Measure Rule
Measure ruleReference the Measure Rule figure to the right. Compute the height from the highest peak (2) to the lowest valley (1) (between the 3 valleys of the three rising valleys chart pattern) and then multiply it by the above “percentage meeting price target.” Add the difference to the highest peak (2) in the 3rv to get a price target (3). The link to the left provides more information on the measure rule.
Early entryReference the lower right figure (Early Entry). If the highest peak (point A) in the three rising valley chart pattern is between the first two valleys (1 and 2), then draw a down-sloping trendline connecting the two highest peaks in the 3rv chart pattern. A close above the trendline signals a buy.
StopReference the lower right figure (Early Entry). Place a stop slightly below the last minor low (point 3) in the three rising valleys chart pattern. The link to the left discusses stop placement in depth.
Yearly highPatterns that breakout within a third of the yearly high perform best.
ReversalsPatterns that act as reversals perform better than continuations. The link to the left discusses this finding as the result of a study of studies.
Volume trendPatterns with volume trending upward perform better. The link to the left discusses this and gives an example. Here is another link that discusses results of a study.Three rising valleys alternate confirmation
Early Entry
Breakout volumeBelow average breakout volume suggests better performance for this chart pattern. For more information, click the link to the left.
ThrowbackThrowbacks hurt performance. The link to the left defines a throwback. This link discusses performance.
GainThe farther up the price trend the pattern appears, the smaller the potential gain. These two, Study 1 and Yearly low discuss the findings.
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Three Rising Valleys Example

Three rising valleys chart pattern example

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

Taking the height from peak 4 (the highest high in the three rising valleys chart pattern) and valley 1 (the lowest low between the three valleys), multiplying it by 58% (the percentage meeting price target from Important Bull Market Results table near the top of this page) gives a target of about 45. The stock climbed to the target a few weeks after the breakout.

-- 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. Always late but worth the wait.