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Triple tops (almost) never work – got gold?

By: Invezz

The last quarter of the trading year started with a low-volatility environment. Nothing moves, and almost all swings are reversed.

Even geopolitical tensions failed to move markets. Instead, investors appear to wait for something else, looking for direction.

Technical analysis usually guides in such an environment when nothing moves and fundamentals fail. Therefore, certain patterns, especially if forming on larger timeframes, are used by traders to position on the right side of the market.

Take gold, for example. While the US dollar strengthened during the summer months, gold still eyes the pivotal $2000 level.

The dollar’s strength is more obvious in the Forex market, where the greenback gained literally against all its peers. However, while declining, the price of gold recovered half of the losses, a move not seen in the FX market.

Such market behavior is consistent with triangular patterns. Indeed, a triangle is visible on the larger timeframes, and it is even more tempting to trade it to the upside because of a so-called triple top pattern.

Gold chart by TradingViewWhat is a triple top pattern?

As the name suggests, a triple top is a reversal pattern. As such, it forms at the end of bullish trends.

Naturally, the presence of a bearish pattern at the end of a bullish trend attracts a lot of interest from market participants. Picking a top or a bottom is more rewarding than waiting for the next trend to start before initiating a position.

A triple top is characterized by the market failing three times at the same horizontal area. While it is a sign of weakness, it also shows that the market tries to overcome significant resistance.

Why do triple tops fail so often?

Triple tops fail because they resemble a bullish continuation pattern – ascending triangles. In fact, until the end of the pattern, no one knows what the market will form – a triple top or an ascending triangle.

For this reason, triple tops fail most of the time, especially if the pattern forms on larger timeframes. Because the pattern is visible to all traders, many will try to do the opposite.

Conclusion

The price of gold remains bullish while the market trades close to the $2000 level. What seems like a triple top pattern might easily transform into an ascending triangle, with a target of $2,300 and beyond.

The post Triple tops (almost) never work – got gold? appeared first on Invezz.

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