As of 11/26/2021
  Indus: 34,899 -905.04 -2.5%  
  Trans: 16,216 -610.57 -3.6%  
  Utils: 907 -15.90 -1.7%  
  Nasdaq: 15,492 -353.57 -2.2%  
  S&P 500: 4,595 -106.84 -2.3%  
YTD
 +14.0%  
 +29.7%  
 +4.9%  
 +20.2%  
 +22.3%  
  Targets    Overview: 11/12/2021  
  Up arrow38,000 or 35,000 by 12/01/2021
  Up arrow17,700 or 16,000 by 12/01/2021
  Up arrow935 or 890 by 12/01/2021
  Up arrow16,400 or 15,350 by 12/01/2021
  Up arrow4,850 or 4,560 by 12/01/2021
CPI (updated daily): Arrows on 11/17/21
As of 11/26/2021
  Indus: 34,899 -905.04 -2.5%  
  Trans: 16,216 -610.57 -3.6%  
  Utils: 907 -15.90 -1.7%  
  Nasdaq: 15,492 -353.57 -2.2%  
  S&P 500: 4,595 -106.84 -2.3%  
YTD
 +14.0%  
 +29.7%  
 +4.9%  
 +20.2%  
 +22.3%  
  Targets    Overview: 11/12/2021  
  Up arrow38,000 or 35,000 by 12/01/2021
  Up arrow17,700 or 16,000 by 12/01/2021
  Up arrow935 or 890 by 12/01/2021
  Up arrow16,400 or 15,350 by 12/01/2021
  Up arrow4,850 or 4,560 by 12/01/2021
CPI (updated daily): Arrows on 11/17/21

Bulkowski on 3-Peaks and Spike

 

Initial release on 7/13/2021.

3-Peaks and Spike: Overview

3-peaks and spike is a new chart pattern I discovered/explored in July 2021, rising from my desire to find the reason why stocks tumble by more than 20%. 3-peaks and spike is a variant of multi-peak patterns. This version has three peaks near the same price (1, 2, and 3 in the figure) followed by a taller peak (4). Price declines and confirms the pattern when the stock closes below the lowest low in the 4-peak pattern (A). There's not a big performance difference between this variant and multi-peaks, but this version has a lower failure rate.

3-Peaks and Spike: Bull Market Results

Overall performance rank (1 is best): 9th out of 38 (where 1 is best)
Break even failure rate: 17%
Average decline: 16%
Pullback rate: 67%
Percentage meeting price target: 45%

The above numbers are based on 495 perfect trades. See the glossary for definitions.

Multi-peak chart pattern
3-peaks and spike pattern

 

3-Peaks and Spike: Identification Guidelines

I followed these guidelines when identifying the 3-peaks and spike pattern.

CharacteristicDiscussion
Price trendAs measured from the trend start, up and down inbound price trends lead to the same performance (16% average drop).
Peaks, spikeMust have at least three peaks near the same price followed by a fourth peak which is above the prior three. I didn't place any limits on how tall the spike must be, but it's usually very tall with no intervening peak(s) between peak 3 and peak 4 (the spike).
SeparationNo minimum, but major peaks I looked at were separated by at least a week (5 price bars).
ConfirmationPrice confirms the pattern and stages a downward breakout when it closes below the bottom of the pattern (the lowest low between the four peaks). Upward breakouts invalidate the pattern.
VolumePatterns with rising volume perform a bit better, 17% decline versus 15%. Patterns with light breakout volume outperform those with heavy breakout volume by one percentage point.
PatternsI don't count patterns if the first three peaks confirm as a triple top. That means price must not close below the lowest valley between the three peaks on the way to forming the spike. The first three peaks shouldn't be a head-and-shoulders top.
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3-Peaks and Spike: Trading Tips

Trading TacticExplanation Measure rule for 3-Peaks and Spike
Measure Rule
Measure ruleReference the figure to the right. Take the height of the pattern from A to B (highest peak to lowest valley between the four tops) and subtract it from the price of the lowest valley (B) to get a target (C). Price reaches the target 45% of the time, so be conservative in your assessment. Tall patterns outperform short ones (and quite substantially: 19% to 13%, respectively).
StopOne percent of the patterns will see price rise above the top of the pattern on its way from the breakout to the ultimate low. Another 16% stop above the middle of the pattern but remain below the price of the pattern's top. The vast majority (78%) will return to stop somewhere above the bottom of the pattern but below the middle.
Price reversalA trend change (20% or more drop) happens only 30% of the time.
Confirmation/breakoutThe pattern confirms when price closes below the lowest valley between the four peaks. That's also called the breakout.

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3-Peaks and Spike: Accenture Example

The asterisks in the following charts show peaks separated by at least 5 price bars.

Multi-peak chart pattern example

Peak A is a 2B top appearing at the end of a multi-peak pattern. It forms the 3-peaks and spike pattern.

The first three peaks (1, 2, 3) top out near the same price. The last peak on the right (A) is the spike. In this example, it's a 2B but it need not be. By that, I mean the spike (peak 4) can be quite tall, well above the prior peaks.

I don't like to see any other peak between 3 and A. It's also not acceptable to see a second peak, after A, which confirms as a double top. If you want to trade a double top, then ignore the 3-peaks and spike pattern.

Also the three peaks (1, 2, 3) should not confirm as a triple top. Confirmation of a triple top occurs when price closes below the lowest valley between the three peaks. That can happen when price dips on the way to form peak A. If that happens then the three peaks are a triple top, probably a busted triple top (when price confirms the triple top but then closes above the highest of the three peaks).

This 3-peaks and spike pattern confirms as valid when price closes below line B.

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3-Peaks and Spike: 3M Example

Multi-peak chart pattern example

In this example, the 3-peaks and spike pattern appears in a downtrend so it acts as a continuation pattern and not a reversal of the downtrend.

The 3-peaks and spike pattern confirms as valid when price closes below the horizontal blue line (drawn below the lowest valley between the four peaks), which happens at A.

-- Thomas Bulkowski

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See Also

 

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My novels:  Bumper's Story Head's Law

Chart Patterns: After the Buy Getting Started in Chart Patterns, Second Edition Trading Basics Fundamental Analysis and Position Trading Swing and Day Trading Encyclopedia of Candlestick Charts Trading Classic Chart Patterns

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