Wednesday, April 22, 2015

Double Bottom


The double bottom formation is a mirror image of the previous pattern.
(See Figure 5.18.). Therefore, one may apply the same characteristics,
potential problems, signals, and trader's point of view from the preceding
presentation.



The bottoms have about the same amplitude. A parallel line (the
neckline) is drawn against the line connecting the two bottoms (B and D.) As
a support line, it is broken at point A. It turns into a strong resistance for
price level at C, but eventually fails at point E. The resistance line turns into a
strong support line, which holds the market backlash at point F. The price
objective is at level G, which is the average height of the bottoms, measured
from point E. (See the dotted lines).


Triple Top And Triple Bottom
The triple top is a hybrid of the head-and-shoulders and double-top
trend reversal formations. (See Figure 5.19.) Conversely, the triple bottom is
a hybrid of the inverse head-and-shoulders and double-bottom formations.
(See Figure 5.20.) Consequently, they have the same characteristics, potential






As a double top, the formation fails at point E. The price moves up
steeply toward point F. The resistance line is holding once more and the price
drops sharply again toward point G. At this level, the market pressure is able
to penetrate the support line. After a possible retest of the neckline, the
prices drop further, to eventually reach the price objective.
The opposite is true for the triple bottom
As shown in Figure 5.19., in a triple-bottom formation, the bottoms
have about the same amplitude. A parallel line (the neckline) is drawn against
the line connecting the three bottoms (B, D, and F.) As a support line, the
neckline is broken at point A. It turns into a strong resistance for price levels
at С and E, but eventually fails at point G. The resistance line turns into a
strong support line, which holds the market backlash at point H. The price
objective is at level I, which is the average length of the triple-bottom
formation, as measured from point D (see the dotted lines).




Rounded Top and Bottom Formations
The rounded top and bottom, also known as saucers consist of a very
slow and gradual change in the direction of the market. These patterns reflect
the indecision of the market at the end of a trend. The trading activity is slow.
It is impossible to know when the formation is indeed completed, and not for
a lack of trying. Like any other consolidation pattern, the longer it takes to
complete, the higher the likelihood of a sharp price move in the new
direction.
Diamond Formation
The diamond formation tends to occur at the top of the trend. The price
activity may be outlined by a shape resembling a diamond (see Figure 5.21.).
The increase and decrease in trading volume closely mimic the combination of
divergent and convergent support and resistance lines. Upon breakout,
volume picks up substantially. The price target is the height of the diamond,
measured from the breakout point.
The head-and-shoulders, the double top and bottom and the triple top
and bottom, due to their significance in trend reversals, are generally known
as major reversal patterns.

















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