The busted triple top and triple bottom are common reversal patterns. These formations occur when the underlying asset tries to move beyond the support or resistance level in the same direction as the current trend. Here you will learn more about the busted triple top and triple bottom patterns and how to use the formations as part of your binary options strategy.
Binary Options Trading: Busted triple bottoms and tops pattern
The formation of this pattern is an indication that the market is attempting to push the underlying asset in a given direction. When this attempt fails, the opposing sellers push the asset on a downward trend while the buyers push it on an upward trend.
How to identify a triple top pattern
The triple top formation is a bearish reversal pattern. This pattern forms when the underlying asset on an upward trend attempts to go past the same resistance level thrice without any success.
Instead, when the asset attempts to surpass the resistance level, it falls to a support level. The formation is completed when the underlying asset passes the third support level. As such, the price of the asset experiences a downward trend.
For this pattern to form, a new price high is created in an uptrend. The increased selling stops the rising prices, causing the asset to encounter a resistance. The increased selling causes a decline in prices until the asset encounters a support level, when buyers gain more control of the market.
Increased buying pushes the asset’s price up to the previous resistance level. As the sellers are in control of the market, the price of the asset is then pushed down to the support.
This alternating movement occurs thrice. However, the sellers eventually take control of the market. Given that the asset manages to surpass the support level, the asset price assumes a downward trend.
How to Identify Triple Bottom Patterns
The triple bottom pattern is a bullish reversal formation. It is quite similar to the triple top signal. However, it is an indication of a downtrend reversal. This pattern shows that the underlying asset is trading in a downward trend and is trying to surpass a support level. Each of the three times the asset attempts to break through the support level, it encounters a similar resistance level. The third time, the asset finally pushes through the resistance level and triggers an uptrend.
Trading the triple bottom and triple top patterns
You can use the triple bottom pattern as part of your binary options trading strategy to spot trends. With this pattern, the call option is bought after the price breaks past the third resistance level. Keep in mind that before this pattern forms, there has to be an extended downward trend on the chart.
One the contrary, a triple top pattern occurs when the price of the asset fails to break through the support level, following the formation of the double top pattern. With this pattern, the put option is purchased after the price of the underlying asset breaks through the support level. Again, keep in mind that for this pattern to form there has to be an extended upward trend.
In conclusion, in a triple top pattern each attempt to go beyond the resistance level causes a decline in trade volume each time the prices rise. When prices break through the support, it causes an increase in volume.
The same happens in a triple bottom. The trade volume reduces at each attempt to surpass the support level, an indication that sellers are losing their market control. The volume increase once the price breaks through the resistance level and thus allows for the completion of the pattern.