Chan Third Buy Complete Guide

What is Chan Third Buy?

The Chan Third Buy is a bullish reversal chart pattern that typically forms after a significant downtrend, signaling a potential shift from bearish to bullish momentum. It is not a single candlestick pattern but rather a multi-bar formation requiring at least 25 bars to develop, indicating a more substantial base-building process. The pattern visually depicts a market that has been in a clear decline, finding initial support, bouncing, and then retesting that support level (or a slightly lower one) multiple times. The 'third buy' refers to the third significant attempt by buyers to absorb selling pressure at a critical support zone, which ultimately leads to a successful reversal. This often manifests as a strong bullish candle or a gap up from the support, confirming that sellers are exhausted and buyers are taking control. Volume characteristics are crucial: typically, volume tends to decrease during the consolidation or base-building phase, reflecting a waning interest from sellers. However, on the decisive 'third buy' breakout, volume should ideally surge significantly, validating the strength of the buying interest and the conviction behind the reversal. While the concept of multiple support tests leading to a reversal is widely accepted, specific statistical reliability data for a pattern explicitly named 'Chan Third Buy' is not extensively documented by researchers like Thomas Bulkowski in his 'Encyclopedia of Chart Patterns,' which primarily focuses on more traditional chart formations. Its effectiveness, therefore, often relies on confirmation from other technical indicators and the broader market context.

Identification Rules

1. Preceding Downtrend: The asset must be in a clear, established downtrend prior to the pattern's formation.
2. Base Formation: Price enters a period of consolidation or base building, often involving multiple tests of a significant support zone.
3. Third Confirmation: The pattern is confirmed on the third significant attempt by buyers to push prices higher from the support zone, often marked by a strong bullish candle or a breakout.
4. Volume Confirmation: Volume should ideally decrease during the consolidation phase and significantly increase on the decisive breakout/reversal candle, validating the buying pressure.

References

• Thomas N. Bulkowski (2005). Encyclopedia of Chart Patterns.
• Steve Nison (2001). Japanese Candlestick Charting Techniques.

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