3 Weeks Tight Chart Pattern
The 3 Weeks Tight chart pattern is best viewed on a weekly chart since you compare the closing share price at the end of each week.
A 3 Weeks Tight chart pattern is considered a bullish continuation pattern. This pattern usually leads to upside price gains upon breaking out.
This pattern develops after the stock has been in an uptrend and decides to take a break. However, larger investors and institutional investors do not see a need to sell any shares, even after the share price has moved up nice already. On the flip-side, these larger type investors anticipate even higher prices still. As such, they use any weakness in the share price to add to their holdings.
In order for this pattern to develop, the share price needs 3 straight weekly closes where each closing share price is no more than 1% to 1.5% higher or lower than the previous week’s closing price. It feels as if the share price is “doing absolutely nothing” during the 3 weeks time that it takes the pattern to develop.[s2If !current_user_can(access_s2member_level1)]…..
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The 3 Weeks Tight chart pattern is a “sneaky, stealthy” consolidation period. Since large investors are trying to add to their position, they are careful not to drive up the share price during the accumulation period. Rather, they use the advantage of time in the trade. Slowly using any weakness to scoop up the shares until the selling dries up. If the selling takes a little longer to dry up, a 3 Weeks Tight chart pattern can turn into a 4 Weeks Tight chart pattern.
Requirements
Following are the requirements for a 3 Weeks Tight chart pattern.
- a 3 Weeks Tight chart pattern is considered a bullish continuation pattern
- the chart pattern takes 3 weeks to develop, hence the name 3 Weeks Tight chart pattern
- each weekly closing share price must be within 1%-1.5% of the previous week’s closing price
- the trading activity between weekly closes should be condensed into a relatively tight trading range
- the trading activity between weekly closes should be condensed into a relatively tight trading range
- the pattern develops after an already extended run-up in the share price
Characteristics & Observations
Following are some of the characteristics for a 3 Weeks Tight chart pattern based on my observations. Some of these observations help to identify the better performing 3 Weeks Tight chart patterns from the under-performing ones.
- If the selling volume is decreasing during the development of this pattern, the breakout to the upside tends to be stronger
- The daily closes during the 3 week development period should also exhibit a relatively tight trading range, in addition to the requirement of the weekly closing price
Breakout Area
The breakout for the 3 Weeks Tight chart pattern is defined as a close above the highest point in the pattern. This close must occur after the pattern is fully developed (after the 3 week period). The breakout should occur on buying volume that is above the daily trading average. If the volume is not confirming the breakout, there is a good chance the breakout will fail.
Remember, not ever chart pattern succeeds with a 100% win ratio. There are failures too. Therefore, during the 3 week development of this pattern, it is extremely important to monitor the daily buying and selling. Make sure that you see accumulation taking place. Make sure volume is decreasing as the 3 weeks progress.
Trading Strategies
Near the completion of the pattern, an initial scale-in purchase can be made if the requirements appear they are going to be met by the close at the end of the week. That means, the initial scale-in purchase would be made on a Friday afternoon in the 3rd week of the pattern.
You can also wait to purchase shares on the following Monday after the pattern fully develops, but there is a chance for a breakout on that Monday morning. That would mean paying higher prices than near the close on Friday. Maybe use a 1/3 scale-in strategy on Friday afternoon. The next 1/3 scale-in purchase would be made at some point during the next week once the breakout is confirmed.
Real Chart Examples
This is a 3 Weeks Tight chart pattern that just recently developed on a chart for Disney Corporation (DIS). The results from this possible breakout could provide an example for other 3 Week Tight chart patterns.
Analyzing a Current Breakout From a 3 Weeks Tight Chart Pattern for Disney Corporation (DIS)
There are a lot of financial stocks that are also developing 3 Week Tight patterns like Disney. The collective results of these actual breakouts can provide some valuable trading information for future breakouts on other stocks.
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