Why the triple top and triple bottom patterns are important

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Nov. 20 2020, Updated 12:24 p.m. ET

Triple top pattern

The triple top pattern is formed in the uptrend. In this pattern, three consecutive peaks are formed. The peaks have roughly the same price level. A breakdown below will result in the trend reversal.

This pattern formation is similar to the double top formation. However, three peaks are formed in the triple top pattern. The price keeps fluctuating between the support and resistance of these three peaks. The traders assume that stock is expensive. As a result, they sell stocks at the resistance levels.

triple top1

The above chart shows the triple top pattern for a NASDAQ stock.

When the selling pressure is more than the buying pressure, breakdown happens in triple top pattern. As a result, trend reversal occurs.

This pattern is used, along with volume, to identify trends. It’s also used for entry and exit signals.

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Triple bottom pattern

The triple bottom formation is formed in the downtrend. In this pattern, three consecutive bottoms are formed. The bottoms have roughly the same price level. A breakout will result in the trend reversal.

The triple bottom formation is formed because investors and hedge funds think that there’s a possible trend reversal. They think the stock is oversold. The buying activity starts and the price fluctuates between support and resistance. It forms a triple bottom.

Triple bottom1

The above chart shows the triple bottom pattern for a NASDAQ stock.

When the stock’s buying pressure is more than the selling pressure, the triple bottom pattern breakout happens and the uptrend begins. When there are more than three peaks, it’s called multiple bottoms in the downtrend. It’s called multiple tops in the uptrend. They’re similar to double and triple top and bottom patterns.

This pattern is used, along with volume, to identify trends. It’s also used for entry and exit signals.

Applying reversal pattern concepts

In technical analysis, the reversal pattern concepts can be applied to companies like Chesapeake Energy (CHK), Linn Energy (LINE), Range Resources (RRC), and Occidental Petroleum (OXY). These companies are part of energy exchange-traded funds (or ETFs) like the Vanguard Energy ETF (VDE) and the SPDR S&P Oil & Gas Exploration & Production ETF.

To learn more about the previously mentioned companies, visit the Market Realist Upstream Oil and Gas page.

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