Three Push Pattern

Apr 27, 2009: 11:20 PM CST

The “Three Push” Pattern is a more modern chart pattern that often needs a Momentum Oscillator to confirm its development, though with practice, you can recognize the pattern without the aid of an oscillator.

Three Push

In this example, we see both a Bullish and Bearish “Three Push” Pattern Reversal on the same chart.  The “Three Push” Pattern is a Reversal or Exhaustion Pattern.

To confirm the pattern, we need to see three similar price swings that resemble each other that make subsequent new lows (or new highs).  However, the three swings are close together and are roughly symmetrical to each other.  The defining characteristic of the “Three Push” Pattern is a Positive Momentum Divergence for a Bullish Three Push (2000-2002) or a Negative Momentum Divergence for a Bearish Three Push (2003-2005).

The particular Momentum Oscillator you use is not as important as identifying the three symmetrical price swings.  For this example, I am showing the “3/10 Oscillator” which is a variant of the MACD Indicator with inputs 3, 10, and 16.

Trading the “Three Push” Pattern

In this example, we will assume we have a Bullish Reversal “Three Push” Pattern as in the first part of the chart – reverse the instructions for Bearish Reversals.  Price must be in a downtrend and be making new lows.  However, you may notice price swings are contracting (shrinking) and perhaps your oscillator is showing a positive divergence (where price makes a new low but your oscillator makes a higher low).   Begin watching the price closely and if price makes a third narrow price low but your oscillator registers a second higher low, you have increased confidence the pattern is developing and need to take action (enter) soon.

Enter when you feel the price is beginning to reverse off the third price low and place your stop a comfortable distance beneath this low.  There might not be a logical prior point on which to base your stop – aggressive traders will place a wider open stop-loss while conservative traders will prefer to place a tighter, closer stop-loss.  Remember that you are trading counter-trend and try not to give too much room for price to move against you.

Since the pattern is a Reversal Pattern without a Measuring Rule (or built-in Price Objective), this pattern works well for position traders when it occurs on the higher time frames.  You will need to use other methods to exit the trade, as you will have the potential to enter a trade as close to the price low preceding a trend reversal as possible.  Many traders find it acceptable to use Trailing Stops when trading this pattern.

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