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How To Trade Triple Tops and Bottoms

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 and 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

triple tops

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.

 

triple bottoms

 

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!

triple bottoms