Trading The Triple Bottoms

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The Triple Bottom is simply an inverted image of the Triple Top. The formation of this pattern occurs exactly the same as the Triple Top pattern except it is preceded by a downtrend. It marks the transition period at the end of a downtrend and the beginning of an uptrend.

All other points about the Triple Bottom pattern are the same as the Triple Top. Refer to the Triple Top section for additional information. The following illustration shows the formation of a Triple Bottom pattern.

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Double Tops

The Double Top pattern is perhaps the most frequent and easily spotted of all the reversal patterns. For obvious reasons, this pattern is often referred to as an “M” top.

How the Double Top Pattern Forms

A Double Top pattern, as the name implies, occurs after an uptrend and is comprised of two prominent peaks (i.e., tops) at approximately the same price level.

As prices trend upward with successive peaks and troughs, prices encounter resistance and retreat temporarily. Prices then make a final attempt to rally, where they again encounter resistance at about the same price level as the previous peak. The conclusion of the Double Top formation occurs when prices close below the previous trough. A return move back up to the breakout point is common prior to the resumption of the new downtrend.

The charts below illustrate the formation of a typical Double Top pattern.

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A common mistake among technicians is to prematurely identify a Double Top before it is confirmed with a decisive downside breakout. What at first appears to be the formation of a Double Top may actually be an Ascending Triangle (see page 18), as shown below. The only difference is that the second pullback never broke below the previous trough. So instead of signaling a reversal, the pattern signals a continuation of the uptrend.

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Summary of Rules for a CPR Double Top Pattern

  1. A prior uptrend defined as at least two successive peaks/troughs.
  2. A left peak, followed by a corrective dip.
  3. A rally to the same level as the left peak.
  4. A close below the previous trough confirms the pattern.

 

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