What are Triple Tops and Bottoms?

The triple top or bottom is another reversal pattern, which rarely occurs. It is a stronger pattern than the double top or bottom pattern since the likelihood of a reversal is higher.

The triple top or bottom pattern is a slight variation of the head and shoulders pattern. The main difference is that in a triple top, the three peaks are around the same level, whereas in a head and shoulders pattern, the head is at a slightly higher peak than both of the shoulders.

• Triple Top Pattern
  

A triple top pattern is complete after both troughs have been broken on heavy volume. Prices must close below the support levels to complete a triple top pattern, signaling the reversal to a new downtrend. There might also be a return move to the breakout point, but should not exceed it, before the downtrend resumes.

Volume

Similar to volume in the presence of a head and shoulders pattern, volume during a triple top pattern tends to decline at each subsequent peak, but increases at the breakdown point, leading to the new downtrend.

• Triple Bottom Pattern

As you can see, a triple bottom pattern is a mirror image of the triple top.

A triple bottom pattern is complete after both peaks have been broken on heavy volume. Prices must close above the resistance levels to complete a triple bottom pattern, signaling the reversal to a new uptrend. There might also be a return move to the breakout point, but should not decline below it, before the uptrend resumes.

Volume

Similar to volume in the presence of a head and shoulders pattern, volume during a triple bottom pattern tends to decline at each subsequent bottom, but increases at the breakout point, leading to the new uptrend.

Example:

As you can see from the example below, the stock WMGI just formed a triple bottom pattern. After reaching its 3rd bottom at about $13.75 per share, it rallied up to $16.50. That’s a 20% gain!

Tags: head and shoulders, price patterns, reversal patterns, triple bottom pattern, triple top pattern, triple tops and bottoms, triple tops or bottoms

This entry was posted on Tuesday, August 25th, 2009 at 8:10 pm and is filed under Learn The Stock Market, Technical Analysis. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.