Triple Tops and Bottoms
Triple Tops are identified by three peaks of similar height, conversely Triple Bottoms are identified by three similar troughs.
Technically, the tripe-top or triple-bottom pattern provides a target level in a similar manner to the targets given by double tops and double bottoms. They are likewise traded in the same manner.
The above example of the Billabong (BBG) daily chart from January 2006 through to June 2006 shows a clear example of a "triple top" pattern.
The target is measured vertically from the highest peak to the bottom of the lowest trough between the 3 peaks. It is then projected down from the breakout below that trough. The reverse is true for triple bottoms.
So, in the above example the first peak (1) of the triple top is $16.31. The the lowest trough (2) is $15.11 and the highest peak (4) is $16.49. So by subtracting the lowest trough from the highest peak, you receive a target price of $1.38 below the breakdown point. If we take the breakdown as the break of the medium term trend (blue line) at point 5 then the target area is (6)
Volume Confirmation
- For a triple top, volume is high on the first peak and low on the third. There is an increase in volume on the second trough and a sharp increase in the breakdown.
- A triple bottom requires high volume on the first trough reducing to low volume on the third. Volume increases on the second peak and again on the breakdown.
- Volume is usually more important on the upside, and volume should generally increase in the direction of the market trend and is an important confirming factor in the completion of all price patterns. The completion of each pattern should be accompanied by a noticeable increase in volume, particularly at market bottoms.
Trading Signals
Triple Top:
- Go short on a break below the support line.
- Place a stop-loss just above the last peak.
- Price often rallies back to the support line, which then acts as a resistance level. Go short on a reversal signal and place a stop-loss just above the resistance level.
Triple Bottom:
- Go long on a break above the resistance line.
- Place a stop-loss just below the last trough.
- Price often corrects back to the resistance line, which then acts as a support level. Go short on a reversal signal and place a stop-loss just below the support level.
Remember, triple tops are rare. When interpreting the pattern, the trader/investor needs to apply some mild latitude in their analysis, as "technically exact" patterns of three equal highs or three equal lows are great in theory but hard to find in practice.
Chartists also know that topping patterns are usually shorter in duration and more volatile than bottoms. Price swings at major tops are wider and more violent. Tops usually take less time to form than bottoms. For this reason it is usually less risky to identify and trade bottoms than tops, however the time spent in establishing a top is generally shorter than the time spent establishing a market bottom. Therefore, a trader can generally do better by trading the downside of the market rather than the upside of the market.
