Double and Triple Tops

Introduction

Gann's first rule for the swing chart is: buy or sell on double or triple bottoms or tops with a stop-loss just beyond them. These formations are some of the most reliable patterns in Gann theory and in technical analysis in general.

Double Bottom

A double bottom forms when a stock falls to the same level twice and holds. It shows that buyers are defending that price.

Triple Bottom

A triple bottom forms when the stock holds the same level three times. Gann said the greatest advances usually start from triple bottoms, and the greatest declines from triple tops.

Double and Triple Tops

The same idea applies at the top. When a stock fails to cross the same high two or three times, sellers are strong at that level.

Time Between Tops or Bottoms Matters

Gann said that double or triple tops and bottoms must be several weeks or months apart to be of great importance. Bottoms that are only a few days apart signal smaller moves. Bottoms that are months apart signal big moves.

The Fourth Test Rule

Gann's Rule 2: when a stock reaches the same top or bottom for the fourth time, it nearly always goes through. So if you buy at the fourth test of a bottom, use a very tight stop-loss, because a breakdown is likely.

Example: Triple Bottom in an Indian Stock (Illustrative)

ITC falls to Rs 400 in January, rallies to Rs 440, falls to Rs 401 in March, rallies to Rs 438, and falls to Rs 399 in May.

• This is a triple bottom around Rs 400, months apart.
• Gann entry: buy around Rs 402 to Rs 405 when the stock turns up from the third bottom.
• Stop-loss: just below the lowest bottom, around Rs 395.
• If the stock later crosses Rs 440 (the tops between the bottoms), the trend is confirmed up and more can be added.

Example: Fourth Test

Suppose Nifty (illustrative) tests 24,800 as a top for the fourth time in six months. According to Gann's rule, the chance of a breakout is high. A trader holding short positions should tighten the stop-loss above 24,800, and a buyer can watch for a close above it.

Lower Tops and Higher Bottoms

• A second top that is lower than the first shows weakness.
• A second bottom that is higher than the first shows strength.

These small differences often give early warning of the next trend.

Using Stop-Loss with These Patterns

• Buying at a double or triple bottom: stop just below the lowest bottom.
• Selling at a double or triple top: stop just above the highest top.
• Gann used a small buffer. For Indian stocks, use a buffer suited to the price, such as 0.5% to 1%.

Spot Patterns on GoPocket

Scan the weekly charts of stocks in your GoPocket watchlist for double and triple bottoms that are weeks or months apart. When a stock turns up from the third bottom, place a Delivery Limit buy order on GoPocket and a stop-loss order just below the bottom.

Frequently Asked Questions

Must the bottoms be at exactly the same price?

No. Bottoms within a small range, about 1% of each other, are considered the same level.

What if the fourth test breaks?

That is what Gann expected. Exit longs and consider that the trend has changed.

Key Takeaways

• Double and triple bottoms and tops are key Gann formations.
• The more time between them, the bigger the next move.
• The fourth test usually breaks through.

Disclaimer: Illustrative prices only. Not a recommendation.