The Dow Patterns
Patterns in Dow Theory can be used by traders to identify trading opportunities. These patterns include:
The Dow Theory gives great importance to the support and resistance levels, so much so that an entire chapter was devoted to it earlier on. This is because it helps in setting targets and stop-loss for trades.
The Double bottom and top formation
A double top & double bottom are often seen as a signal of reversal. The double bottom is created when a stock price falls to a shallow level, briefly recovers and then trades higher for at least 2 weeks before moving back down towards the previous low. If the stock manages to support itself and thus bounces back up, then the pattern of a double bottom is fulfilled.
The triple top and bottom
As you may have guessed, a triple formation is similar to a double formation, except that in this case the price level is tested three times rather than two. The reading of the triple bottom is analogous to that of the double bottom.
As a general rule, the more frequently a price level is tested and reacted to, the more respected it is. This is why the triple formation is considered to be more influential than the double formation.
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