Hey friends, welcome to Stock’s Knows. This is the 2nd part of Chart patterns' article, in this article we will understand another four chart patterns: double top – double bottom, triple top – triple bottom.
1)Double Top:
The double Top pattern forms by two prominent highs. It is a bearish reversal pattern. The graphical shape of the double top looks like “M”. When the price isn’t able to move above the first high, this is the first weakness point. When price moves below the low made between two highs, the double top pattern is completed.
How to trade?
To trade double top chart pattern for profit, one should go short when price moves below the low, made between two highs.
Stop loss:
Ideally, stop loss for this trade would be above some point of the low between two highs.
How to Calculate Target?
For target calculation, one needs to calculate price difference between highs and low formed between those highs and project it downside from breakout level.
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| Image source: Investing.com |
2)Double bottom:
The double bottom chart pattern forms by two prominent lows. It is a bullish reversal pattern. The graphical shape of the double bottom is like “W”. When price doesn’t go below first low, this was the first indication of strength. When it moves above the high formed between two low levels, the double bottom is completed.
How to trade?
To trade double bottom chart pattern for profit, one should go long when price moves above the high formed between those two low levels.
Stop loss:
Ideal stop loss for this trade would be below the high, made between those two lows.
How to calculate Target?
For target calculation, one needs to calculate price difference between Lows and High formed between those low levels and project it to upside from breakout level.
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| Image source: Investing.com |
3)Triple Top:
The triple top chart pattern forms by three prominent highs (or tops). It is the strong bearish reversal pattern.
The triple top pattern is same as head and shoulder pattern. The only difference between them is that in triple top all the highs are at the same levels, whereas in head and shoulder pattern first and third highs at nearly same levels but the second high is at the higher level.
When we joint two lows formed between first and third highs, we get a line which is known as the neckline of this pattern. When price moves below neckline triple top chart pattern is completed.
The triple top pattern is same as head and shoulder pattern. The only difference between them is that in triple top all the highs are at the same levels, whereas in head and shoulder pattern first and third highs at nearly same levels but the second high is at the higher level.
When we joint two lows formed between first and third highs, we get a line which is known as the neckline of this pattern. When price moves below neckline triple top chart pattern is completed.
How to trade?
To trade triple top chart pattern, one should go short, once price moves below the neckline (breakout level).
Stop loss:
Ideal stop loss for this trade would be above the neckline.
How to calculate target?
To calculate target, one needs to calculate price difference between neckline and highs. And should project it below from neckline.
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| Image source: Investing.com |
4)Triple bottom:
The triple bottom chart pattern forms by three prominent lows. It is a strong bullish reversal pattern.
Triple bottom chart pattern looks like an inverted head and shoulder pattern, the only difference between them is, in the inverted head and shoulder pattern 2nd low is lower than both first and third low, whereas in the triple bottom all three lows forms generally at the same level.
When we joint two highs between first and third highs, we get a line which is known as the neckline of this pattern. When price moves above the neckline, triple bottom chart pattern is completed.
Triple bottom chart pattern looks like an inverted head and shoulder pattern, the only difference between them is, in the inverted head and shoulder pattern 2nd low is lower than both first and third low, whereas in the triple bottom all three lows forms generally at the same level.
When we joint two highs between first and third highs, we get a line which is known as the neckline of this pattern. When price moves above the neckline, triple bottom chart pattern is completed.
How to trade?
To trade triple bottom, one should go long, once price moves above neckline (breakout level).
Stop loss:
Ideal stop loss for this trade would be below the neckline.
How to calculate Target?
To calculate target, one needs to measure price difference between neckline and lows. And should project it above from neckline.
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| Image source: Investing.com |
These were another four chart patterns which will be very helpful if one understand and do practice to find those patterns to predict price direction. If you find helpful above information then please Share our article and Subscribe to the newsletter of our blog.
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