Evaluating three-bar reversal reliability

How the three-bar pattern is identified

The studied three-bar pattern is defined on daily bars. The middle day has the unique lowest low, the last day prints a breakout close that finishes strictly above the prior day's high, and each day has a nonzero range.

What followed a completed setup

In the sampled stock set, 245 patterns from 25 unique stocks produced a 32% pattern failure rate, implying about two of three completed setups then rose.

Successful patterns averaged a 6% rise, while the most frequent outcomes clustered between 1% and 4%. A typical path to the swing high was about 7 days, and the most likely path was 2 days.

A higher high the day after the pattern ended occurred 58% of the time and declined to 52% one week later, so a next-day continuation high is only slightly better than even.

Completed patterns split almost evenly between swing reversals and consolidations, 49% versus 51%. The same three-bar shape often continues the prior move instead of reversing it.

Volume-price analysis as a check

Volume rose across the three days on average, with above-average volume on 33%, 36%, and 43% of days one through three. Volume-price analysis compared each pattern day's volume with average volume and the three-day volume trend, but volume did not reliably separate successful outcomes from pattern failure.

When the pattern is only a first filter

If the session after completion does not hold above the third day's low, the setup is more likely acting as a consolidation than a swing reversal, which keeps the implied short-term downside limited.

The author treated the pattern as too weak and too common to trade alone and used it only as a supporting first filter when a broader stock decision was already under review.