By Vlada Raicevic*
I'm going to continue with the theme I discussed in an earlier article of patterns based on Fibonacci numbers. The more I work with these patterns, the more comfortable I become with them. I'm also quite impressed with how often even the creation of a partial pattern can be of use in trading. Last time I wrote about this, I mentioned that, even though a completed Gartley pattern can often predict the length and direction of the next move, a partial fulfillment (creation) of the C wave can often be useful as a trade entry either short (bullish Gartley) or long (bearish Gartley).
Before I get to the three drives pattern, let's take a look at a nice Gartley pattern from not too long ago on the ES. 
Bullish Gartley Pattern
ES 5-Minute Chart
As you can see, the Gartley pattern can be present on any time frame, and, here, it is on the 5-minute chart, a nearly perfect setup long on the completion of the pattern at D = 864.75.
Let's do a quick revisit on how this was built:
- The move from X to A is retraced .618 to form B.
- Then, the move from A to B is retraced .618 to form C. Perfect symmetry there.
At this point, even though the Gartley is not finished, one can take a short position based on the unfolding of the pattern. The expectation is that the next move down to form D will be below B. So, you check the next retracement of the move from X to A and find that the .716 is in the 864.75 area. Here is where the math part comes in.
- You calculate C - B = 7.75.
- You multiply this by a couple of standard Fibonacci extensions, such as 1.27, 1.41, 1.618 etc., and then subtract the results from the C high. Multiplying 7.75 times 1.27 gives you 9.84, which, subtracted from C, gives you 864.91, almost exactly the .786 retrace of X to A.
Therefore, you make the assumption that the pullback below B will stop in the 865 area, and you look to close out shorts if you're short and look to go long if you see a reversal there. The EXPECTATION of the bounce from D is a MINIMUM of .618 of the move from C to D, but, in the previous example, that area was met and exceeded.
Three Drives Pattern
The strict interpretation of this pattern is that we have three waves of equal magnitude with specific, and equal, Fibonacci retracements and expansions at each wave. However, I will show an example later in this article, which, I believe, refutes the necessity of such a strict interpretation. People familiar with Elliott Wave analysis will see some similarities, looking at this as a 5-wave pattern with the first and fifth waves being of equal length. Here is how they look. 
Bullish and Bearish Three Drives Pattern Diagram
This pattern, like all patterns, gives you the potential capability of predicting future price movement. Also note that, if Wave 3 completes either at strong horizontal support / resistance, or at a key Fibonacci retracement for a given move, the strength of the pattern is greatly enhanced.
The concept is quite simple and has some similarities to the Gartley pattern. A move in price is retraced, and, if you notice that the retracement is close to the standard .618 Fibonacci number, you have the start of the pattern. The following chart shows the start of such a pattern, with the ES reaching 830.50, a .618 retracement of the initial move up. 
Wave 1 of a Bearish Three Drives Pattern Chart
The next chart shows how you continue to do the same thing as in the previous example for the next two waves up. You can see how Wave 2 is corrected .618 just like Wave 1.
Finished Bearish Three Drives Pattern Chart
Note that each of the waves up are also a Fibonacci extension of the previous wave. 
You can see this by doing the same calculation as was shown in the previous example for the Gartley pattern for leg C to D.
So, for the first wave, we take the value of Wave 1 and subtract the retracement value, like so: Step a: 842.75 - 830.50 = 12.75.
Then, we multiply this amount by the Fibonacci extension of 1.27: Step b: 12.75 * 1.27 = 16.19.
Then, we add that value to the retracement value of Wave 1: Step c: 830.50 + 16.19 = 846.69.
You can see that Wave 2 ended at a high of 847, just as predicted by the calculation. The Wave 3 high overshot a similar projection by one point, but it was close enough. Why is this called a Bearish Three Drives Pattern? Once we have our completed pattern, we can now say that we should get a reversal of at LEAST .618 from the Wave 3 high. The following chart 
shows that we got that initially, then a bounce followed by a severe selloff.
Bearish Three Drives Results Chart
When you find a perfect Three Drives Pattern, there is a high probability that you can take a trade based on the projected .618 target. I've seen a few examples of this pattern building and repeating on top of itself. Meaning that the Wave 3 pullback is .618, which leads to a Wave 4 expansion of 1.27 just like the previous waves. You can then take yet another trade off the Wave 4 high with a target of .618 retracement.
However, the perfection and symmetry of such a pattern does not present itself very often, and we have to make do with some of its ugly cousins. I have personally found that imperfect versions of these patterns are useful for speculative trades.
For example, look at the following Bullish Three Drives chart, which has the appropriate Fibonacci retracements but doesn't have the symmetrical look of the previous chart. Once Wave 3 has formed, you can take a long trade for an expected .618 retracement of the last move, down which formed Wave 3. The resulting move actually gave a profit of .786 retracement from the Wave 3 
low.
Bullish Three Drives Pattern Chart
The resulting move actually gave a profit of .786 retracement from the Wave 3 low.
Result of Bullish Three Drives Pattern Chart
If you want to be completely conservative in the use of this pattern, you may have to wait 
quite some time to find the perfect setup. However, if you allow some leeway in your view of pattern recognition, you can benefit from this pattern quite often.
Alternate Three Drives Pattern Chart
The price made created a nice Three Drives pattern, went to the estimated target of .618 retracement off Wave 3 and then went on to create one more wave that I've marked as Wave 4. This wave should also give you 
yet another .618 retracement, and, in fact, gave much more, due to the gap down. You can also view that fourth wave as an extension that took price out to an extreme that required a larger pullback.
Also, note that the first move up only had a .500 retracement, and I, therefore, didn't mark the top of it as a Wave 1. However, if you said to yourself, “.500 is good enough for me; I'm going to mark it as Wave 1,” you could have started taking trades for an expected retracement one wave earlier than the one marked Wave 3. If you were to do this, I would set a target of .500 rather than .681 until a true Three Drives Pattern formed.
This is a simple pattern to SEE even without drawing lines and, therefore, lends itself to real-world use for trading.
*This article is reprinted with permission (and modifications) from www.optioninvestor.com.
