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materializes at a major Fibonacci retracement and rallies through this area, this would indicate strong price action. The following example will illustrate the concept well.

Citigroup formed a clear Three Drives pattem. Although this pattem was not in an extreme price range - either an all-time low or high, the third drive was completing in an area that converged with a major Fibonacci retracement. When this situation arises, it is usually a good set-up. I would prefer an ideal Three Drives pattem in a price extreme. But, when three distinct and symmetrical thmsts materialize, a potential reversal is very probable. This type of a Three Drives pattem really should be considered only when another Fibonacci retracement is present. In this situation, Citigroup did sell off sharply, as it lost almost ten points in a few days. But, the stock recovered quickly. Citigroup rallied above this reversal, which usually suggests that the stock is strong.

CITIGROUP (C): DAILY

BEARISH THREE DRIVES AT A FIBONACCI RETRACEMENT

®Big,Charts.com

Rug Se-p Oct Nou De-c 99 Feb Mar Rpr



Other market technicians might consider the three drives as merely an Elliot Wave pattem. Although the three drives might exhibit, a five-wave Elliot pattem, identifying an ideal Elliot wave set-up can be more difficult than focusing on the three impulse drives. Remember, the three impulse drives must be very similar to each other. Also, a critical factor about the three drives is that the third drive must not be exceeded after the reversal is established. If the third drive is violated, the pattern is invalid. So, when a Three Drives pattem is identified, it creates a favorable set-up where the stop loss limit is relatively low.

Three Drives Summary

The Three Drives pattem is a powerful reversal signal. Although it does not occur as frequently as a Gartley or a Butterfly, the Three Drives represents a substantial opportunity for profit. Remember, this pattern should "stick out" at you. If the pattem is not obvious, you are probably trying "to force" the pattem. Similar to the Butterfly, the Three Drives pattem usually will appear in extreme price areas - either all-time highs or lows. When the pattem does not develop in price extremes, it can signify reversals only when it coincides with major Fibonacci retracements or projections. I strongly recommend that you memorize the ideal set-up, since it is the most obvious of all of the pattems.



Part IV

Learning the System: Putting it All Together



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