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How to trade chart patterns (Part 3)

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As we know, one of premise of technical analysis is history repeats itseilf. In other words, human behavior tends not to change. Then technical analysts study chart patterns, which reveal the psychology of the market. Chart patterns worked well in the past. They are assumed to work well in the future. Hence, the future is predictable. In this topic, we will define chart patterns and how to trade based on those patterns.

Triple Top


Triple top is a reversal pattern. This pattern occurs at the top of an uptrend, which is a clear signal the preceding upward trend is weakening. Buyers are losing their interest. The pattern is identified when the price of an asset creates three peaks at nearly the same level. If price breaks down the neckline, the preceding uptrend is considered to be reversed and the price will move lower in the future. The minimum expected target equals the distance between top of pattern and the neckline.

Triple bottom


This pattern is opposite to triple top. It occurs at the bottom of a downtrend, which is clear signal the preceding downward is losing its momentum and preparing to be reversed. Sellers are losing their interest. This pattern is identified when the price creates three bottoms at nearly the same level. If price breaks out the neckline, the preceding downward is noted to be reversed and the price will move higher in the future. The minimum expected target equals the distance between bottom of pattern and the neckline or base of pattern.

Trading triple top and triple bottom


The example below describes how to trade a triple bottom pattern of GBP/USD. A buy order should be placed above the neckline.above Please take note that thís pattern requires a break out above the neckline. If the price fails to break out the neckline, the pattern is not correct.