Candlesticks, Fibonacci, and Chart Pattern Trading Tools : a synergistic Strategy to Enhance Profits and Reduce Risk

Figure 4.40
Intel chart from 03–00 to 12–00. Key-reversal day.
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3-POINT CHART PATTERNS FOR TREND REVERSALS
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101
Three Rising Valleys and Three Falling Peaks
Three rising valleys and three falling peaks are among the most sta-
ble and reliable 3-point chart patterns.
The general pattern consists of either three valleys with two
peaks in between or three peaks with two valleys in between. In con-
trast to the other 3-point chart patterns described thus far in this
section, three rising valleys and three falling peaks are trend-
following patterns and do not indicate trend reversals. We get a short
signal at the low of the lowest valley and a buy signal at the high of
the highest peak.
It is essential to keep in mind the distinction between 3-point
chart patterns indicating trend changes and 3-point chart patterns
indicating continuing trend movements. We refer to this distinction
again in the following section on triangles.
Figure 4.41 shows a 6-month bar chart of the DaimlerChrysler
stock.
Figure 4.41
DaimlerChrysler chart from 02–02 to 08 –02. Chart patterns of
three falling peaks and three rising valleys.
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102
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APPLICATIONS OF TRADING STRATEGIES
The Japanese Yen cash currency against the U.S. Dollar provides
another chart example of three falling peaks as a solid basis for a
short market entry (see Figure 4.42).
For market entries, we sell at the lowest intermediate valley
(three falling peaks) or buy at the highest intermediate peak (three
rising valleys) of the 3-point chart formation. Reminder: The respec-
tive chart formations of falling peaks and rising valleys always con-
sist of either three peaks and two intermediate valleys or three valleys
and two intermediate peaks.
The stop-loss is placed at the most recent peak above (short posi-
tions) or at the most recent valley below (long positions) our entry point.
The profit target works again as doubling the distance from high-
est high to lowest low of the 3-point chart formation.
Our trailing stop rule also is the same one that we have already
used several times in this chapter. We buy f lat at the most recent peak