Double and triple top and bottom patterns are the subjects of today’s article. They may remind you of the Head and Shoulders pattern. The main rule is the same, the confirmation comes when the price cuts through the neckline of the pattern. But the difference lies in the height of the tops or bottoms in these two types of patterns. In the head and shoulders, there is a clear increase (or decrease) in the middle top (or bottom). In the double and triple top and bottom patterns, the height of all elevations is pretty much the same.
To read more about the head and shoulders pattern you should check the article about recognizing H&S pattern. If you are already familiar with it, it should be easier for you to recognise double or triple tops and bottoms. Although the success rate for the head and shoulders is a bit higher than for the double and triple tops and bottoms, it is good to know also the latter. So let’s begin.
- 1 Identifying the double top and double bottom patterns at Olymp Trade
- 2 Identifying the triple top and triple bottom patterns at Olymp Trade
- 3 How to trade with the double and triple top and bottom patterns on the Olymp Trade platform
- 4 Summary
The double top
The double top pattern is a bearish reversal pattern which means it appears during the uptrend and signifies the change in the trend direction. It consists of two tops of similar height. The neckline is the line that marks the local low between tops. When the price breaks out from this line, you get the confirmation of the double top pattern development.
To calculate how deep the price can fall, you should check the length of the highest top in the pattern and deduct it from the neckline level.
The conditions that must be met for the double top to form are the following:
- There are two tops of comparable height. The difference between them may be a few pips, depending on the time frame used.
- The price drops suddenly after it cuts through the neckline level.
- It takes quite a long time for a pattern to form.
The double bottom is a bullish reversal pattern which implies you will find it along with the downtrend and you can expect the change in the direction of the trend afterwards. Two bottoms form the pattern so it looks like the “W” letter. They are very similar in height. You can draw the resistance level at the price level of a top located between the two bottoms. It will be the neckline of the formation. Once the price breaks it, it grows rapidly.
You can estimate how far the price will go by measuring the height of the pattern itself.
To identify the double bottom the following conditions must occur:
- There are two bottoms that are similar in height. The difference between them may be a few ticks on intraday charts.
- After breaking the neckline, the price grows rapidly.
- The pattern is developing for a long time.
The triple top
The triple top is the bearish reversal pattern, that is why, similar to the double top pattern, it appears at the top of the uptrend and signals the change in the price direction. It is yet more reliable than the double top because it develops during a longer period.
You can observe three peaks of a similar height. The space between them is different, though. When you connect the lows of the pattern, you will get the support level, also called the neckline. When the price exceeds it, the formation is verified.
When recognising the triple top you should check if:
- All three peaks are of similar height.
- A price decrease after breaking the neckline is abrupt.
The triple bottom, as the double bottom, belongs to the bullish reversal patterns group. It develops at the end of the downtrend and signals the upcoming uptrend. It is more valuable than the double bottom because its creation time is longer. On the other hand, you will encounter the triple bottom less frequently.
You will observe three subsequent bottoms in this pattern. Their height is very similar, although the distance between them is usually distinct. When you join the highs of the pattern you will get the neckline. Once the price breaks it, the pattern is confirmed and the uptrend starts.
To identify the triple bottom you must follow a few rules:
- All three bottoms are similar in height.
- The volume increases abruptly after the price exceeds the neckline.
Triple top and triple bottom
You should be very careful, particularly if you are a beginner. You should act fast to get the best entry points and when the price exceeds the neckline the chances of success are great. But the risk lies in the possibility of the double top or bottom extension to the triple top or bottom. This is why you should observe the market thoroughly and practice recognising the candles patterns.
The duration of your position depends on the time frame you are using. If you trade, for example, on the 1-minute chart, your option should last 5 minutes or longer. If you are using a 5-minute candle chart, keep the position open for at least 15 minutes.
You should wait for both bottoms to appear. Patience is very important in trading. Your entry point is when the candles break the neckline of the double bottom formation. When the first candle closes above the neckline, you open a long option right after it.
The volume and momentum increase rapidly. In the example below, I was using a 5-minute candle chart, so I opened a long position for 15 minutes.
Trading a short option with the double top pattern
The double top develops at the end of the uptrend. Observe the chart and wait for the whole pattern to appear. When the candle closes below the neckline, enter a sell trade. With a 5-minute period chart, your position should last around 15 minutes.
The triple bottom takes even longer to develop than the double bottom. Observe the price. You may expect the third bottom to appear when there is no visible volume increase after the second one.
You get the confirmation of the triple bottom the moment the price cuts the neckline of the pattern. Enter a long trade immediately after the first candle closes above the neckline.
Trading a short option with the triple top pattern
The triple top pattern is expected at the top of the uptrend. Wait patiently. If you do not observe a sudden increase in volume after the second top, you have the reason to anticipate the appearance of the third one. The confirmation will come together with the cutting through the neckline. Open a short position when the first candle closes below the neckline.
The double and triple top and bottom patterns inform about the trend reversal. Your job is to recognise them and act accordingly.
Development of the double and triple top and bottom patterns takes a long time. You should patiently wait for the whole pattern to unfold. Only this ensures you will not enter too early and lose. Remember that the confirmation of this kind of patterns occurs when the candles break the neckline of the formation.
You should always follow the economic calendar. Significant news releases can cause some unexpected changes in price behaviour.
Try the double and triple top and bottom patterns on the Olymp Trade demo account. Share your experience with us in the comments section below.
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