Chan Third Sell Complete Guide
What is Chan Third Sell?
The 'Chan Third Sell' is a bearish reversal chart pattern that typically forms after a sustained uptrend, signaling a potential shift from bullish to bearish momentum. While not a universally recognized pattern in classical technical analysis literature like those by Bulkowski or Nison under this specific name, it conceptually aligns with patterns involving multiple failed attempts to break resistance, such as a variation of a Triple Top or a Head and Shoulders pattern. It requires approximately 25 bars to fully develop, indicating a medium-term reversal signal. The pattern forms as the market attempts to rally three distinct times, but each subsequent rally struggles to make significant new highs, or even forms lower highs. The first two rallies might establish resistance levels, and the 'third sell' refers to the final, exhausted attempt by buyers to push prices higher. This third peak often fails to surpass the previous highs, demonstrating a clear weakening of buying conviction. Following this third failed rally, a decisive breakdown below a critical support level (often referred to as a 'neckline' connecting the troughs between the peaks) confirms the pattern. Volume characteristics are crucial for confirmation. Typically, volume tends to diminish on each successive rally, especially on the third attempt, indicating a lack of strong buying interest. Conversely, a significant surge in volume accompanying the breakdown below the support level provides strong confirmation of the bearish reversal, signaling that sellers have taken control. The pattern signals that the prior uptrend has run out of steam, and a downtrend is likely to commence. Due to its non-standard nomenclature, specific historical reliability data for the 'Chan Third Sell' pattern from widely cited sources like Bulkowski's 'Encyclopedia of Chart Patterns' is not available. However, patterns exhibiting similar characteristics, such as Triple Tops, generally show moderate to high reliability as bearish reversal signals, with performance varying significantly based on market conditions and the specific asset.
Identification Rules
- A clear, established uptrend must precede the pattern's formation.
- The pattern consists of three distinct peaks or attempts to rally, with the third peak failing to surpass the second (or first) peak, often forming a lower high.
- A discernible support level (neckline) connects the troughs formed between the three peaks.
- Confirmation occurs when the price decisively breaks below the neckline, ideally accompanied by a significant increase in trading volume.
References
- Thomas N. Bulkowski (2005). Encyclopedia of Chart Patterns.
- Steve Nison (2001). Japanese Candlestick Charting Techniques.
FAQ
What is the significance of the 'third' attempt in this pattern?
The 'third' attempt signifies a final, exhausted effort by buyers to push prices higher. It suggests that after two previous attempts, the market lacks the conviction or buying power to sustain the uptrend, leading to a decisive reversal. It's a common psychological threshold in market dynamics, often indicating a culmination of buying pressure before a capitulation.
How important is volume in confirming the 'Chan Third Sell' pattern?
Volume is critically important. Ideally, volume should decrease on each successive rally towards the peaks, especially the third, indicating weakening buying interest. The most crucial volume signal is a sharp increase in volume when the price breaks below the neckline, which provides strong confirmation of selling pressure and the validity of the bearish reversal.
Is the 'Chan Third Sell' related to a Triple Top pattern?
Conceptually, yes. The 'Chan Third Sell' shares strong similarities with a Triple Top pattern, which is a well-known bearish reversal pattern. Both involve three attempts to break a resistance level, followed by a breakdown. The key distinction, if any, might lie in the specific interpretation of the 'third sell' or the relative heights of the peaks, but the underlying market psychology of buyer exhaustion is the same.
What is a typical price target after the pattern is confirmed?
A common method for estimating a price target is to measure the vertical distance from the highest peak of the pattern down to the neckline. This distance is then projected downwards from the point where the price breaks below the neckline. For example, if the highest peak is at $100 and the neckline is at $90, the projected target would be $80 ($90 - ($100 - $90)). This is an estimation and should be used in conjunction with other analysis.
What if the third peak is significantly higher than the previous two?
If the third peak is significantly higher than the previous two, it generally invalidates the 'Chan Third Sell' pattern as a bearish reversal. A higher third peak suggests renewed buying strength and a potential continuation of the uptrend, or the formation of a different bullish pattern. For a bearish reversal, the third peak should ideally be lower or at least not significantly higher than the preceding peaks, indicating a loss of upward momentum.
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Parts of this page (FAQ, introductions) are AI-assisted. Core data and statistics are algorithmically computed. All pattern definitions are human-reviewed.
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