Written by and copyright © 2005-2013 by Thomas N. Bulkowski. All rights reserved.
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 (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
Three Rising Valleys Identification Guidelines
|Weekly or daily||The pattern appears on either the daily or weekly chart.|
|Price trend||Usually upward leading to the pattern.|
|Shape||Look for 3 rising valleys – each valley must be above the prior one.|
|Proportional||Each valley should look similar. Select all narrow ones or all wide ones, all short, or all tall. Don’t mix them.|
|Volume||Trends downward 67% of the time.|
|Confirmation||The pattern confirms when price closes above the highest peak the pattern.|
Three Rising Valleys Trading Tips
|Measure rule||Reference 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 entry||Reference 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
|Stop||Reference 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 high||Patterns that breakout within
a third of the yearly high perform best.|
|Reversals||Patterns 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 trend||Patterns 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.||
|Breakout volume||Below average breakout volume suggests better performance for this chart pattern.
For more information, click the link to the left.|
|Throwback||Throwbacks hurt performance. The link to the left defines a throwback. This
link discusses performance.|
|Gain||The farther up the price trend the
pattern appears, the smaller the potential gain. These two,
Study 1 and
Yearly low discuss the
Three Rising Valleys 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
-- Thomas Bulkowski
Copyright © 2005-2013 by Thomas N. Bulkowski. All rights reserved. Always late but worth the wait.