Three Falling Peaks Chart Pattern

As of 08/12/2022

Indus: 33,761 +424.38 +1.3%

Trans: 15,147 +74.16 +0.5%

Utils: 1,042 +15.91 +1.6%

Nasdaq: 13,047 +267.38 +2.1%

S&P 500: 4,280 +72.88 +1.7%

YTD

-7.1%

-8.1%

+6.2%

-16.6%

-10.2%

Targets Overview: 07/28/2022

34,500 or 31,850 by 09/01/2022

16,300 or 14,300 by 09/01/2022

1,075 or 990 by 09/01/2022

13,600 or 12,000 by 09/01/2022

4,325 or 4,000 by 09/01/2022

CPI (updated daily):

on 7/15/22

As of 08/12/2022

Indus: 33,761 +424.38 +1.3%

Trans: 15,147 +74.16 +0.5%

Utils: 1,042 +15.91 +1.6%

Nasdaq: 13,047 +267.38 +2.1%

S&P 500: 4,280 +72.88 +1.7%

YTD

-7.1%

-8.1%

+6.2%

-16.6%

-10.2%

Targets Overview: 07/28/2022

34,500 or 31,850 by 09/01/2022

16,300 or 14,300 by 09/01/2022

1,075 or 990 by 09/01/2022

13,600 or 12,000 by 09/01/2022

4,325 or 4,000 by 09/01/2022

CPI (updated daily):

on 7/15/22

Bulkowski on Three Falling Peaks

My book, Encyclopedia of Chart Patterns Second Edition

Encyclopedia of Chart Patterns 2nd Edition book.

(pictured on the right), takes an in-depth look at the three falling peaks chart pattern. This formation appears often, not only in the stock market, but in other markets as well. It is a reliable performer that shines in a bear market.

If you click on the above link and then buy the book (or anything) while at Amazon.com, the referral will help support this site. Thanks.

The 3 falling peaks chart pattern sports three peaks, each successive one is below the prior one. When price closes below the lowest valley between the three peaks, it confirms the three falling peaks chart pattern as valid.

The first sign of a trend change from up to down begins with a lower peak, so this chart pattern can be used as an indicator of the start of a bear trend either in an individual stock or the entire market (when it occurs in an index or average). Unfortunately, waiting for the pattern to confirm before exiting a position may mean a loss or large profit give-back, so its use as a bear market indicator is not recommended. Nevertheless, if the pattern appears, it means to avoid long positions.

Important Bull Market Results for Three Falling Peaks

Overall performance rank (1 is best): 21 out of 36

Break even failure rate: 22%

Average decline: 15%

Pullback rate: 66%

Percentage meeting price target: 23%

The above numbers are based on 2,300 perfect trades. See the glossary for definitions.

Three falling peaks chart pattern

The Three Falling Peaks Chart Pattern

Three Falling Peaks Identification Guidelines

Characteristic	Discussion
Price trend	Upward leading to the pattern then price trends downward.
Shape	Three peaks, each one lower than the prior one.
Symmetry	Each peak should look similar to the others. If you select wide, thick peaks, they should all look that way. The peaks do NOT have to follow a trendline.
Confirmation	The pattern confirms as valid when price closes below the lowest valley in the pattern.

Trading Tips for Three Falling Peaks

Trading Tactic	Explanation	Measure Rule
Measure rule	Reference the Measure Rule figure to the right. Compute the height from highest peak (1) to lowest valley (2) then multiply it by the above 'percentage meeting price target.' Subtract the result from the lowest valley (2) in the pattern to get a price target (3). The link highlighted on the left provides more information on the measure rule.
Valley short	Reference the Valley Short figure to the right. For aggressive traders: If the first valley (point A, between peaks 1 and 2) is below the second (point B between peaks 2 and 3), use the second valley (B) as the confirmation price, not the lowest valley (A).
Stop	Place a stop slightly above the most recent minor high (point 3) in the three falling peaks chart pattern. If you are unfamiliar with stop placement, click the link to the left.
Cover	If price rises above any of the peaks, then cover the short.	Valley Short
Pullbacks	Pullbacks hurt performance. The link to the left provides more information about pullbacks and this link provides performance.	Valley Short

Three Falling Peaks Example

The above figure shows an example of the three falling peaks chart pattern. Peaks 1, 2, and 3 mark the three peaks of the chart pattern. Point 4 is the confirmation price, the price at which squiggles on the stock chart become a three falling peaks chart pattern.

Taking the height from peak 1 (the highest high in the three falling peaks chart pattern) and valley 4 (the lowest low between the three peaks), multiplying it by 23% (the percentage meeting price target from Important Bull Market Results table) gives a target of about 77. When the stock opened after the company issued an earnings warning, price gapped lower and reached the target the same day. Basing a new target on the full height (point 1 minus point 4, subtracted from point 4) gives a target of about 69. The stock reached that target within the month.