In today’s article, we’ll take a look at one popular trading strategy. We chose a simple strategy that will be comprehensible both to an experienced trader and a beginner.
The “Three-Drive” strategy (or Three touches pattern) is considered a universal technical analysis tool that has several advantages:
- allows successful transactions during the movement of a currency pair;
- special reliability and accuracy if used properly;
The strategy is based on the principle of identifying a currency pair in the market, according to which the price will increase or decrease more than others. The chart shows this movement by forming the “Three-Drive” candlestick pattern, which is also called “Three Indians”.
How to use Three Drive Pattern in your trading
- Step 1- Choose a convenient timeframe – four-hour (H4) or one-day (D1) interval. It’s worth noting that these are not the main parameters, and the strategy is also applicable to other timeframes.
- Step 2 – You can trade any currency pair, but taking into account an important point: the price should move in a definite trend – up or down. Wait for the “Three Indians” pattern to form.
- Step 3 – Observe the trend line and determine the moment of the “touch”. Plot the line on the chart by connecting the two points (touches), i.e. connect the two highs or lows that form the trend.
- Step 4 – Make a successful entry into the market by opening a trade, placing Sell Limit or Buy Limit pending orders, depending on the direction of the trend and price fluctuations. These latch triggers are set according to a previously plotted trend line, which the price intersects.
Using the Three Drives pattern, you can make a profit in 3 different ways. Traders can choose the appropriate method, based on their skills and trading experience.
- Trades are closed along the horizontal line.
- Trading transactions are carried out with the application of the Fibonacci extension method. If market conditions allow, the order is closed on one of the lines, passing at the Fibonacci level.
- Stop Loss is set at a certain distance from the average value to protect the trader’s funds from losses and close the trade when the price reaches a certain level.
The “Three Drives” strategy limits the setting of Stop Loss on the chart to approximately 20 points up or down from the market entry point. Stop Loss acts as an “insurance” for traders, protecting them against significant losses, as it triggers forceful closure of the trades that are no longer profitable. However, the Three Drive pattern won’t work if a currency pair breaks through support or resistance without going through the three tangents.
As we can see from this description, the strategy is quite simple and therefore it’s popular among traders who like working with various currencies and instruments and use a wide range of trading tools.