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Technical analysis or charting allows investors to use a range of patterns to assist them with timing their entry to and exit from positions. Double & Triple Tops and Bottoms are reversal patterns (like Head & Shoulders and wedges) that form at the top or bottom of a trend with the bottoms being Bullish and the tops being Bearish. Each can be split into distinct sections that help identify when the patterns are forming, helping ready the investor for the next move, be it higher or lower;
1. The initial sell-off into the pattern can be steep or gradual.
2. The first bounce gives us the pattern’s base level and peak.
3. A bullish pattern is only confirmed when a second bounce goes higher than the first.
4. The pattern objective from the breakout equates to the distance from the base to the peak of the first bounce.
The setup for the triple bottom version is exactly the same, just with three bounces instead of two.
1. The initial rally into the pattern can be steep or gradual.
Whilst trade objectives are calculated by assuming and projecting the height of the bounces and sell-offs, note that bullish double/triple bottoms and bearish double/triple tops don’t always deliver a move equating to the full pattern height. Sometimes they undershoot. Sometimes they overshoot. And the pattern itself is not always perfectly neat. What is most important is that overall pattern respects the general steps mentioned above.
Individual technical indicators should never be relied upon in isolation for trading decisions, however strong the signal may be. Ultimately they are one of many indicators, which may, in the majority, be pointing the other way. Always use look at other indicators (moving averages, trendlines, price, price patterns, volume) to assist in the final trading decision. Lastly, the current trend of a share should always be respected – preempting a change can prove costly.