Three Bar Groups

Three Bar Groups

Chart formations in Technical analysis require a group of bars to derive a pattern. Sometimes a single bar or two bars can show great patterns, but as a group, 3-bar series groups provide reliable patterns or confirmations for other major developing patterns. These groups of bars are called "key reversal" bars. This 3-bar group may also consist of well known two-bar reversals or a single bar patterns within inside this group. Most of these 3-bar groups are part of a "fractal" formations or part of "market structures" where a prevailing trend showing signs of pausing or reversal of current trends. Bars with exhaustion price-action, "narrow range (with inside-days)" or "spike with ledges" are some of the 3-bar group pattern examples. 3-bar group pattern formations near key support and resistance levels or near key moving averages (50 EMA, 200 SMA) offer great potential trade setups.

Within the 3-Bar Groups, intra-bar relations like close and open values relative to other bar close and open values and how they are formed could give signals of continuation or reversal of trends. Gaps within the 3-bar patterns also have significance.

Three Bar Pattern groups as the name suggests, will have three continuous bars. It can be in any time-frame or in any market instrument. A 3-bar group pattern is defined using the three bar's inter-bar Open, High, Low, Close relationships with each other. In my view, Three Bar patterns are relatively short trade setups and should be traded using other indicators. They are more effective as reversals near the end of prolonged trends than in the middle of the trends. When markets making new highs and showing a series of signs of pausing or reversals, 3-bar patterns are more reliable than 3-bars formed in the middle of the trend. Two out of three 3-Bar Groups may be successful but the concept also applies to bigger structures with three continuous major "swing highs" and three continuous major "swing lows". When trading three-bar groups, look for the third bars' range. When the range of the third bar is greater than prior two bars, it tends to produce more reliable results.

One of the 3-Bar Groups (Market Structures) is discussed in detail in this book and here I present few of my favorite patterns that I trade.

Trading 3-Bar Groups

All the 3-Bar group patterns listed below have trade-setups. Most of these patterns are short-term based and targets are usually at a major "swing high" or major "swing low" based on the pattern setup. Stop orders should be placed to protect the trade within the 3-bar groups. Three bar group patterns fail when significant support or resistance is traded against the trade setup. When trading an upside 3-bar group, place a stop order below the lowest low of the three bars. When trading a downside 3-bar group, place a stop order above the highest high of the three bars.

Trading Three Bar Groups

3

2

1

H[3] > H[2] C[2] < C[1] L[1]>L[2] H[1]>H[2] Trade above H[3]

3

i

1

-

H[3] > H[2] C[2]<C[1] L[2] < L[3] 0[1] < C[2] C[1] >C[2] L[1] < L[2] Trade above H[2]

3

2

mm t

H[3] > H[2] C[2] < C[3] 0[1] >C[2] H[1] >H[3] Trade above H[1]

3

1

H[3] > H[2] H[2] >H[1] L[3] < L[2] L[2]<L[1] Trade above H[3] or Trade below L[3]

Trading Three Bar Groups

2

H[3] > H[2] C[2] < C[3] 0[1] >C[2] H[1] >H[3] Trade above H[1]

Hii l

L[2] < L[3] L[1]<L[2] H[3] > H[2] H[2] >H[1] Series of Small bars Trade below L[1]

4

«I

2

1

mm

H[4] < H[3] C[3] > C[2] C[2] < C[3] 0[1]<C[2] C[1]>C[2] Trade above H[3]

4

JT

3

j

H[3] < H[4] c[3] > C[4] H[2] > H[3] C[2] < C[3] L[1] < L[3] C[1] > C[3] Trade above H[2]

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