What is the Three Falling Peaks (Bearish) Pattern?
The Three Falling Peaks pattern forms when three minor Highs (1, 3, 5) arrange along a downward-sloping trend line.
This pattern often emerges at the end of a rising trend, when a security slowly rolls over. It potentially indicates sellers moving in to replace buyers, which pushes the price lower.
Trade idea
If the price breaks out from the bottom pattern boundary, day traders and swing traders should trade with the DOWN trend. Consider selling the security short or buying a put option at the downward breakout price level. To identify an exit, compute the target price by subtracting the pattern’s height (maximum price minus minimum price within the pattern) from the breakout level the lowest low. When trading, wait for the confirmation move, which is when the price moves below the breakout level.
To limit potential loss when price suddenly goes in the wrong direction, consider placing a stop order to buy back a short position or sell a put option at or above the breakout price.
Disclaimers and Limitations
Contributor
Sergey Savastiouk, Ph.D. has a degree in Applied Mathematics from Moscow University and has extensive experience as an entrepreneur, investor, manager, and mathematician. His professional expertise is in applied mathematics, mathematical modeling, system and pattern analysis, and software and hardware system integration. He has served as the CEO of several hi-tech start-up companies and nonprofit organizations, which has given him proven capabilities in business strategy for high-tech start-up companies, market assessment, company formation, team building, product development, marketing, and sales. He has published numerous articles in journals and magazines on related fields. As a retail investor, he spent 15 years developing his proprietary trading and quantitative algorithms (now Tickeron’s A.I.), which brought him significant returns in trading the stock market. His current work and goal in founding Tickeron is to bring professional, sophisticated stock market analysis capabilities to retail investors via an easy-to-use interface.
