Bulkowski’s Three Rising Valleys

Written by and copyright © 2005-2009 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, Second Edition (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.

For more information, read pages 698 to 710 in the book and the following...

Important Bull Market Results

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%

Three rising valleys

Identification Guidelines

Trading Tips

Trading Tactic	Explanation	Measure Rule
Measure rule	Reference the right figure. 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 buy.
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.	Early Entry
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 findings.

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