Mastering Double & Triple Tops/Bottoms: Boost Your Win Percentage

Trading the Double Top Reversal Pattern

A double top is a bearish pattern that occurs when the price is moving up, drops briefly (the pullback) and then moves back to the same price area as the prior high. The price then drops below the low of the prior pullback.

This formation shows that the upward price movement has stalled as the price was unable to make progress above the first high when it tried to do it a second time. It is a trend reversal pattern because now the price is making progress to the downside, having moved below the low of the prior pullback.

The chart above shows how the pattern looks. The low point of the pullback after the first high is often referred to as the neckline. When the price drops below the neckline after the second high point, the double top is in place and the price may continue moving in a bearish trend. The neckline is the breakout level of the pattern.

The chart above shows a double top trading strategy. Enter short (or exit long positions) as the price drops below the neckline. Place a stop loss above the prior highs (labeled “resistance zone”) and place a target below the entry point.

For an approximate target, measure the distance in price between the high of the pattern and the neckline. For example if the highs occurred at $55 and the neckline level is $50, the pattern is $5 in height. Subtract that from the neckline to get $45; that is the profit target.

Notice the reward and risk are about the same ($5). Using a small stop loss, such as putting the stop loss below the resistance zone will reduce the risk while still keeping the same $5 profit target (placed at $45), for example.

After dropping below the neckline, the price will often bounce up to the neckline, giving it a last kiss before dropping away again. This creates another entry opportunity.

Wait for the price to move back to the neckline (after dropping below it). Then, when the price starts dropping again, enter short, with a stop loss slightly above the neckline or last kiss high that just formed. This often results in a small stop loss, yet you can still use the downside target based on the height of the pattern, creating a more favorable reward-to-risk trade.

Here is an example of a trade in the EUR/USD. The double top forms, then price drops below the neckline. It comes back up to retest or kiss the neckline before dropping again.

Not all double top patterns end up resulting in the price dropping. A failed double top is when the price drops below the neckline, but then rallies back up above the neckline and proceeds to make a new high above the resistance level.

This pattern can also be traded. Once the price has made a new high, you can consider an entry there, with a stop loss below the prior low. Add the height of the pattern to the prior highs (resistance zone) to establish a profit target. Y

You can also use the last kiss strategy, by waiting for a pullback after the new high, and once the price starts moving up buy it with a stop loss below the low that just formed (the pullback low in the resistance zone on the chart above).

Trading the Double Bottom Reversal Pattern

A double bottom occurs when the price is dropping, then the price rallies briefly (the pullback), and then moves back to the prior low. The price then rallies above the high of the pullback.

This is the same pattern as the double top, but flipped upside down, and the same guidelines for trading it apply.

Take the height of the pattern and add it to the neckline for an approximate profit target. A stop loss can go below the lows or the support zone. This will create a trade where the reward is roughly the same as the risk.

You can also use the last kiss method here. Wait for the price to move above the neckline, and then enter as when the price pulls back to the neckline and then starts moving up again. This can create a small stop loss (with a stop below the swing low in price that just formed) and a target above.

Above is an example in Bitcoin. The double bottom forms and spikes above the neckline. There is an option to enter as the price moves above the neckline. There is another pullback that comes to the necklines and then the price starts to move up. That presents another entry opportunity. Double bottom reversals can also fail.

When that happens, look for the price to continue moving to the downside, but only if it drops below the prior low points. Enter at the lower neckline or as the price drops below the support zone. You could also wait for a pullback and use the last kiss method.

Trading the Triple Top Reversal Pattern

A triple top chart pattern is when the price makes three highs in a similar area, with two pullbacks in between. The low point of the pullbacks forms the neckline.

When the price drops below the neckline, the triple top is in place and signals a possible continuation of the downside.

The guidelines for trading a triple top are the same as trading a double top. Wait for the price to drop below the neckline. That is the first possible entry. If there is a rally back up to the neckline, that may set up another possible entry. Measure the price distance between the highs and the neckline, and subtract that amount from the neckline to get a profit target.

Above is a trade example in the USD/JPY. In this case, enter as the price dropped below the neckline was the only choice. The price dropped away and hit the target. The objective of the pattern has already been achieved as it captures a drop to the profit target.

When the price rallies back up to the neckline, yet it is not an ideal trade because the price already hit the target to the downside, and now the price is actually making waves to the upside, indicating a short-term uptrend. On the far right of the chart, notice a small double top forms, halting the rallying.

Trading the Triple Bottom Reversal Pattern

A triple bottom chart pattern is when the price makes three swing lows in a similar area, with two pullbacks in between. The high price of the pullbacks creates the neckline.

When the price rallies above the neckline, the triple bottom is complete and signals a possible continuation of the new bullish trend that is now forming.

The trading guidelines for a triple bottom are the same as trading a double bottom. Wait for the price to rally above the neckline. That can be used as the first entry. If there is a pullback to the neckline, that may set up another possible entry as the price starts moving higher again after the pullback (last kiss entry).

Measure the price distance between the low price and the neckline, and add that amount to the neckline to get an estimated profit target for the ensuing up move.

The chart above shows a triple bottom in the EUR/GBP forex pair. Possible entries include buying as the price surpasses the neckline, and then if the price pulls back toward the neckline and starts rising again.

The first target is the height of the pattern added to the neckline. The second target, if expecting a really big move the upside, is the pattern height multiplied by two, and then added to the neckline.

Double and Triple Bottoms and Tops Variation and Performance

Thomas Bulkowski has written several books on chart patterns, and has tested thousands and thousands of them for how they perform.

He provides some of those statistics in his book Encyclopedia of the Chart Patterns. Often, he only runs tests on daily charts and mostly on stocks.

His research shows that after forming a double bottom, the average price rise is 39%. Based on this, he used a slightly different profit target method. Instead of taking the difference between the low and the neckline for a double bottom (or the high and the neckline for a double top), he puts a target at 73% of that distance.

For example, if the pattern is $10 in height, he is putting a target $7.30 away from the neckline. He also found the price pulls back for a last kiss 67% of the time. Bulkowski also zeroed in on more precise versions of the standard double bottom and top. He called these variations Adam and Eve.

Adam peaks are sharp, while Eve peaks are more rounded. This creates four possible combinations of the Adam and Eve double top pattern. They are ranked in terms of the performance, with number 1 being the best performing pattern.

• 1st. Eve & Eve Double Top (EEDT)
• 2nd. Adam & Adam Double Top (AADT)
• 3rd. Adam & Eve Double Top (AEDT)
• 4th. Eve & Adam Double Top (EADT)

He also ranked the double bottom pattern, with the Eve Eve being the top performer.

• 1st. Eve & Eve Double Bottom (EEDB)
• 2nd. Adam & Eve Double Bottom (AEDB)
• 3rd. Eve & Adam Double Bottom (EADB)
• 4th. Adam & Adam Double Bottom (AADB)

You could potentially use this information to enhance your trading of double tops and double bottoms.