Methodology

Stocks

Module 4

What is a portfolio?

Triple tops

A triple tops pattern is very similar to the head & shoulders pattern.The simple difference is that triple tops are formed with three triangles that are of equal height.  This is clearly different from head & shoulders, which requires one larger triangle to be formed in the middle.

 

The triple tops pattern is interpreted in the same way as the head & shoulder pattern. When a triple top is formed, it is assumed that the market will go down.

 

For a triple tops pattern to be valid, each triangle must be of similar height and should fall to the same level after each peak. Unless that happens, the triple tops pattern is invalid.

Triple bottoms

As you may have already assumed, the triple bottoms pattern is similar to the inverse head and shoulders pattern. Much like with triple tops, the triple bottoms pattern involves three triangles that are of equal height. Each triangle must peak at the same level and return to the same level. 

 

The exception to this is the final triangle, which should continue to follow an upward trend. In the case of a triple tops pattern, the final triangle would continue to follow a downward trend.

 

Short term traders would achieve gains if they invested at the right time, after the triple bottoms pattern had fully formed. Likewise, they could avoid loses by selling their positions when a triple tops pattern had formed.

How effective are triple tops and triple bottoms patterns?

Triple top and triple bottom patterns are primarily used by short term investors, who rely on technical information provided within stock charts.

 

The effectiveness of triple tops and triple bottom patterns are limited as they do not appear that often. They usually only form when there is a major reversal in the trend of a stock.

 

Such major changes in the trend of a stock do not happen often, which means that this technical indicator may only be useful periodically. As a consequence, triple top and triple bottom patterns will typically be used by short term traders alongside other technical indicators.

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