Shallow retracements maintain the horizontal support level and indicate solidifying resistance. Steeper corrections between tops show a willingness to buy on dips and invalidate the pattern. A valid triple top usually sees corrections less than 50% of the prior up move. Larger price movements within the pattern may signify that the opposing forces—the bulls and the bears—are engaged in a serious battle, rather than a mild scuffle. The quad top pattern takes this cursive analogy a step further with their four connecting peaks and troughs – pressed up against the same price barrier.
The fact we see three tests implies buyers made concerted efforts to break resistance but upon the third failed test, buyers appear exhausted and give way to profit taking selling. Traders take a short position once the bearish candlestick fails angular support. They stop at the top of the third peak or the bullish candlestick in the picture. You’ll notice that this could look like a bigger bear flag pattern.
Guidelines for Interpreting Patterns
The size of the pattern varies depending on the timeframe and volatility of the security. On lower time frames like hourly or 15-minute charts, the tops form over just a few days. Larger patterns that form over longer time frames are considered more significant. Spotting a bearish triple top begins with locating three clear peaks of similar height on the chart. Zooming out can help reveal how the swing highs align to test comparable resistance zones.
When sellers prevail after three failed peaks, the triple top signals the uptrend may be over. The triple top pattern is a reversal chart pattern that is formed when the price of security hits the same resistance level three times before breaking down. The triple top pattern is considered a bearish signal that indicates a shift in the market sentiment from bullish to bearish. To trade the triple top pattern, traders wait for the breakdown of support after the third peak to initiate short positions.
Point 7 is located at the intersection of the last price line with the neck line. In the In Progress mode, the indicator looks for not only formed, but also emerging patterns. The third peak of such a pattern may not be in the pivot, and the price lines that form it will be dotted. Also, take note of the volume – you will usually see declining volume on each successive peak. This indicates waning enthusiasm behind the uptrend as fewer buyers step in despite the bulls efforts to press higher, it sets the stage for a trend reversal.
For protection, a trader could place a stop loss on short positions above the latest peak, or above a recent swing high within the pattern. This move limits the risk of the trade if the price doesn’t drop and instead rallies. Sometimes a triple top will form and complete, leading traders to believe the asset will continue to fall. But then, the price may then recover and move above the resistance area.
- Each successive peak demonstrates the bulls have diminishing power to break major resistance.
- As with all other reversal patterns, triple-top patterns are only competing once support is broken; the lowest point of the pattern is considered support.
- As the decline pauses, dip buyers and remaining bulls see the retreat as a buying opportunity.
- If you’ve looked for trading education elsewhere then you’ll notice that it can be very costly.
- Triple tops convey that buyers who were eager to chase new highs are becoming more cautious of further gains.
Key Takeaways
The triple top is used in technical analysis to predict the reversal in the movement of an asset’s price. A triple top occurs when the price peaks, retraces, rallies to a similar peak, retraces, rallies to a similar high again then declines again. As other major reversal patterns, the triple top pattern usually form over a three- to six- month period. The pattern is also similar to the double top pattern, when the price touches the resistance area twice, creating a pair of high points before falling. The evolving triple top provides an early alert that buying pressure is waning and a potential trend change is ahead. Traders prepare for reversals in advance rather than reacting after the fact.
The triple top pattern is identified on a chart when an asset hits the same resistance level three times without being able to break above it. Typically, the asset will rise towards the resistance level, retreat, and then rise back up to test the level again twice triple top chart pattern more. Each peak reaches the same resistance zone before selling pressure pushes the price lower. The pattern reflects changing market psychology, and reversal signals prove profitable.
This is the psychology of the pattern, and what helps fuel the selloff after the pattern completes. Triple tops also draw frequent comparisons to double-top chart patterns showing two peaks of similar height rather than three. While not as dramatic, a double top also telegraphs buyer exhaustion at resistance. Some traders will enter into a short position, or exit long positions, once the price of the asset falls below pattern support. The support level of the pattern is the most recent swing low following the second peak, or alternatively, a trader could connect the swing lows between the peaks with a trendline.
TRADING ROOMS AND LIVE STOCK TRAINING
We want the everyday person to get the kind of training in the stock market we would have wanted when we started out. Triple top patterns have three highs, hence the name triple top. Each high should be equal, have good space, and mark clear turning points, establishing resistance. If the higher timeframe is in an uptrend, then the Triple Top pattern is likely to fail (on the lower timeframe). You’ve learned 4 techniques to trade the Triple Top chart pattern.
Triple Top Pattern Formation
Triple tops convey that buyers who were eager to chase new highs are becoming more cautious of further gains. With distribution underway, the market tone tilts from greed and euphoria to anxiety and scepticism. After hitting resistance, buyers are unable to sustain the uptrend. Profit-taking and selling pressure kicked in, causing the stock to retreat from the first peak.
How to Identify the Triple Top Pattern
As the name implies, the defining characteristic of a triple top is the three attempts by prices to rise above a certain resistance level. Each peak is usually slightly lower than the last as buyer enthusiasm diminishes. The volume also tends to decrease with each successive rally attempt. Put simply, the triple top stock pattern indicates a potential shift from an uptrend to a downtrend, signaling that bullish momentum may be ending. It is considered a bearish pattern, meaning prices are expected to fall after the triple top forms. As with double tops and bottoms, the risk/reward ratio is a drawback of these triple patterns.
The triple top telegraphs that risk/reward is skewing to the downside, and key resistance may hold. Heeding this can allow traders to take defensive actions ahead of the bearish breakdown. So in essence, traders use the triple top formation to frame planned short entries with predefined risk/reward ratios. Remember, the key with chart pattern trading is setting defined trade plans for entry rules, profit targets, and stop loss points. You want to try catching the downward move as selling momentum picks up off the triple top – but also limit downside if the trade doesn’t immediately work out. Essentially, the pattern translates visually into the kind of price action you would expect to see when bullish sentiment could be waning.