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Three Rising Valleys

three rising valleys

The three rising valleys pattern is preceded by an uptrend usually, but can be preceded by a downtrend as well, and the pattern itself suggests a break further to the upside. There are three valleys, the second valley's low price is higher than the first valley's low, and the third valley's low is higher than the second valley's low. The valleys should be fairly similar in width. The suggested buy signal is triggered when prices close above the high price established by the peak between the second and third valleys.

Market Psychology of the Three Rising Valley Chart Pattern

higher lows and higher highs create the 3 rising valley

The market psychology of the pattern is as follows: A significant trait of an uptrend is that the trend makes higher highs and higher lows. The second peak in pattern is a higher high. The second valley after the first peak is a higher low. The definition of a new uptrend is complete. The second peak is a higher high which confirms the uptrend. Once prices break above the second peak high, traders buy expecting that the next peak will be a higher high thus confirming the uptrend yet again.

Average Maximum Gain of Three Rising Valleys Price Breakout

diagram showing average gains

Bulkowski (2005) claims that the averaged maximum gain before a 20% retracement is 41%; and that prices pullback to the breakout signal price within 30 days 60% of the time.

Price Targets

Bulkowski (2008) suggests the following price target of the three rising valleys pattern:

Three Rising Valleys Upward Breakout Price Target: High Price of 2nd Peak + ((High Price of 2nd Peak - Low Price of 1st Valley) * 58%)

Bulkowski also suggests placing a stop loss at the low of the third valley.

Three Rising Valleys Chart Example

stock chart of the three rising valleys

The chart above of Wal-Mart (WMT) shows a three rising valleys pattern. The pattern is preceded by an uptrend over the past three months but had a quick week and a half downtrend move. The pattern made higher highs and higher lows. When prices break above the high of the second peak, traders are betting on prices rising to another higher high, which in this chart example, it does.

Works Referenced

  1. Nison, S. (2003) The Candlestick Course. Hoboken: John Wiley & Sons.
  2. Nison, S. (1994) Beyond Candlesticks: New Japanese Charting Techniques Revealed. New York: John Wiley & Sons.
  3. Nison, S. (1991) Japanese Candlestick Charting Techniques. New York: New York Institute of Finance.
  4. Rhoads, R. (2008) Candlestick Charting For Dummies. Hoboken: Wiley Publishing.
  5. ThinkorSwim. (2011). ThinkorSwim Resource Center: Candlestick Patterns Library.
  6. The Pattern Site. (2005). Bulkowski’s Three Rising Valleys . Retrieved June 1, 2012, from http://thepatternsite.com/3rv.html