4 bars: The pattern is composed of four bars, three lows and a reversal bar.
Lower lows: Look for two consecutively lower lows (using 3 bars) on the daily chart. It doesn't matter what the high prices of these bars look like, only that each low is consecutively lower than the prior low.
Higher high: The last bar in the pattern has a high that is above the first bar in the pattern. It doesn't matter at what price the low is on this bar.
3L-R Trading Tips
Trading Tactic Explanation Continuation: The pattern acts as a continuation pattern 53% of the time. In other words, the pattern fails more often than it works since it's supposed to act as a reversal.
Continuation: 3L-Rs acting as continuations outperform those acting as reversals of the short-term trend. That means look for price to rise leading into the 3L-R (gains averaged 9% (continuations) versus 8% for reversals. The results were the same in bear markets.
Buy : Buy at the open the day after the last bar in the pattern.
Measure rule : The 3L-R fulfills the measure rule 56% of the time (bull market). That is, measure the height of the pattern and add it to the high price to get an upward target.