The triple top pattern is also similar to the double top pattern. The difference is that the triple top does not have the bearish volume, so the bulls can come in once more to try and break the highs. Triple top patterns are similar looking to head and shoulders patterns. While they look similar, the peaks are more equal on a triple top, making the formation different. Triple top candlestick pattern offers an early alert of buying pressure and the potential trend change ahead. This increases the probability of your short trade as selling pressure from the higher timeframe is working in your favour.
The three peaks show there is a significant supply available, limiting further upside. The triple top pattern is completed when sellers take control and force the price decisively below nearby support around the troughs. This breakdown reflects failed demand and confirms the transition from an uptrend to a downtrend. Other technical indicators and chart patterns may also be used in conjunction with the triple top. For example, a trader may watch for a bearish MACD crossover following the third peak, or for the RSI to drop out of overbought territory to help confirm the price drop. Patience is required when trading triple tops as the pattern unfolds over weeks or months.
Triple top pattern: Definition, Importance, Parts, How It Works, Benefits, Risks, and What Does It Tell?
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Triple Top Pattern Formation
The pattern is sometimes negated if resistance breaks to the upside. Sometimes, support breaks briefly before the price recovers back above it. This false breakdown invalidates the pattern and leads to losing trades.
Guidelines for Interpreting Patterns
This failure to pass the resistance level three times reinforces its significance and suggests a high probability of a downward reversal. Yes, the triple triple top chart pattern top pattern is combined with other chart patterns to improve trading results. Using the triple top in conjunction with other patterns helps confirm both the direction and strength of potential breakouts.
How Does the Triple Top Pattern Work?
- The triple top is a reversal chart pattern that signals a potential change from an uptrend to a downtrend.
- With distribution ramping up, the market balance tilts from greed, complacency and euphoria to anxiety, indifference and distribution.
- When price finally does break out of the price pattern, it can represent a significant change in sentiment.
- Correct identification, combined with analysis of volume and other indicators, helps gauge the strength of ensuing downtrends.
After the third high, the volume increases as the sellers/shorts come in and drive the price back down. The pattern can be nullified if resistance breaks to the upside. Then you want to avoid shorting the breakdown because your stop loss is too wide (and the low of the pullback is where buying pressure is lurking which is not a good thing). Because you’ll likely short into an area of Support where potential buying pressure could push the price higher.
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When the price falls below the trendline the pattern is considered complete and a further decline in price is expected. The triple top pattern is a reversal formation that technical analysts use to identify potential trend changes on financial charts. The triple top pattern consists of three peaks or tops that are formed around the same price level, with troughs or pullbacks in between.
This means the stock or asset has been steadily rising over weeks or months. The uptrend is identified by higher swing highs and higher swing lows in the price action. The break of support signals that demand has weakened and the balance has tipped from bullish to bearish sentiment. Sellers have gained control, and any buyers who enter the market are quickly overwhelmed by selling pressure. The break of support validates the pattern and confirms the downtrend. Traders aim to capitalize on triple top breakdowns by shorting on the close below support or anticipating the break.
Volatility is a measurement of the variation of prices over time. Patterns showing larger degrees of volatility are likely to result in more significant price moves once price breaks out of the pattern. Patterns that emerge over a longer period of time generally are more reliable, with larger moves resulting once price breaks out of the pattern. Therefore, a pattern that develops on a daily chart is expected to result in a larger move than the same pattern observed on an intraday chart, such as a one-minute chart. Likewise, a pattern that forms on a monthly chart is likely to lead to a more substantial price move than the same pattern on a daily chart. So while not a guarantee, traders view the completion of this triple top stock chart pattern as a high probability sign that downward price moves have a good chance of unfolding.
Having the stop triggered above resistance invalidates the pattern breakdown. The stop loss gives the pattern room to unfold while limiting risk. The target profit is set near the level of the troughs or further if the asset begins collapsing rapidly after the breakdown.
Lagging indicators or oscillators are slow to reflect the trend change implied by the pattern, causing late reactions. Beyond just entering shorts, the pattern allows flexibility using options, hedges, throwback entries, etc. Following exact pattern rules demands trading discipline and accountability. Traders must stick to high-probability setups and manage trades according to a plan. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
The triple top signals an impending breakdown and need to go short—the triple bottom prompts positioning for an upside breakout by going long. The patterns look similar but have opposite implications due to what buyers and sellers are doing around key zones. Analyzing this market behaviour and psychology is key to trading the chart patterns. Yes, there are many real-world examples of traders successfully capitalizing on the triple-top pattern. In 2016, gold prices formed a long-term triple top over 18 months.
What are Potential Benefits of Triple Top Pattern Used as a Trading Decision?
Triple Tops can be found on every time frame from intraday to months. It will often take a few months to form and are great reversal patterns for swing trading. The inability to break the resistance level can allow for an opportunity to short while looking to trade the bearish options strategies. In a triple-top pattern, the price hits the same resistance level three times, forming a series of peaks that show buyers unable to break higher. In contrast, the triple bottom pattern forms three troughs at the same support level as buyers emerge and propel the bounces off the lows.
The following chart shows an example of a triple top in Bruker Corp. (BRKR). The price pulls back between each attempt, creating the triple top pattern. The stock quickly broke below trendline support at $34 and continued to decline on escalating volume. The right place to place a stop loss for a triple top pattern is above the high of the third peak. This allows the pattern to play out fully and for the breakdown to be confirmed before getting stopped out of a short position.