A triple top pattern refers to the chart pattern types that are mainly utilized by traders in technical analysis. It makes it possible to foresee the potential reversal in the price for the particularly traded instrument or asset. The name “triple stop” stands for itself introducing three peaks to signal the inability of an asset to continue the rally and a chance for the rice to go lower.
The key benefit of trading the triple top chart pattern is the fact that it can be applied to any time frame. It has an opposite chart pattern in the face of a triple bottom, which signals the price is no longer able to lower and is likely to go up. In this article, we will review some of the key points to indicate and trade the triple top pattern.
Before we discuss how the chart pattern works and how to use it under real market conditions, we need to highlight several crucial takeaways you need to remember right from the start. They are as follows:
Now, you will see how a triple top chart pattern works.
As stated earlier, the pattern is formed with three peaks above the support. They are created by the asset price with peaks located at the same price level. When the three peaks are formed, they build a resistance area between pullbacks also known as swing lows. Once the final peak has been completed, the price is supposed to head down below the swing low. It means that the pattern formation has been completed, and traders are supposed to look for prices to keep moving to the downside.
Experienced traders may find a triple top quite similar to another pattern formed by three peaks – a head and shoulder pattern. The only difference is that the middle peak is mainly on the same level instead of going higher if compared to the other two. Some similarities may also be found when compared with the double top pattern.
Note: head and shoulder and a triple top pattern are traded in exactly the same way.
When you spot the pattern, it means that the asset price can no longer penetrate the peak area. If applied to the real-market conditions, it means that the asset has already made several hopeless attempts to meet buyers at a specific price range but failed.
If it is not able to go higher than the resistance level, holding an asset will hardly have a huge potential in terms of generating profit. However, selling may still escalate if the price drops down below the swing low. It will make new traders enter the market with a short position while older buyers will have nothing to do but to leave the market going long.
No matter how well a pattern works, it never works the same way all the time. A triple top is not an exception. You may observe it forming, completing, and making you believe that the price will keep on falling. But in reality, it has a chance to recover and go higher than the resistance area formed by three peaks. To avoid unaccepted situations, it is recommended to use the latest peak when placing stop loss in short positions.
If a trader sees the price falling below the support, he or she is likely to enter the market with a short position or leave it going long. No matter what you do, a good idea is to use a trend line for connecting swing lows. If the price is heading below the trend line, a triple top chart pattern is complete, while the price is likely to continue going down.
With a y pattern, you might need confirmation to avoid false signals. In the situation with a triple top, traders are supposed to seek heavy volumes, as they show that sellers express a strong interest in the asset. However, if you see the volume on the same level without the slightest chance to increase, it means that the pattern appears to be nothing but a failure.
To make the most of this pattern, the best way is to use it along with other technical indicators. For example, it may have a great effect when used in conjunction with MACD, RSI, and other traders’ tools.
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.