Triple Top Pattern Meaning, Formation, Benefits, How to Trade
Look for the price to stay below the resistance levels to confirm a bearish continuation. Yes, the triple top pattern originated and is defined by three peaks advancing into the same price region with pullbacks in between each peak. The formation of the pattern begins with an uptrend, as buyers push the price higher into a region of resistance. The first peak forms when the price hits that overhead resistance level and gets rejected down off of it.
Traders could set a level to take profit by measuring the pattern’s height and projecting it down from the breakout point. In addition to this, support levels or older swing lows could serve as potential targets. The subsequent rally would fail to break the older high, which would form the second peak. This failure would further reinforce the resistance level, attracting bearish traders. The price retraces, but the subsequent rally would fall short of breaking the resistance level for the third time, creating a peak.
The good news is, before the Triple Top pattern fails, there are usually clues given by the market. No patterns, strategies, or techniques work all the time — this includes the Triple Top pattern. Firstly, you don’t want to chase the market lower because there’s no logical place to set your stop loss. Also, this is where the market is ready to make a pullback or a reversal.
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It indicates the stock has struggled multiple times to break above a key resistance level, suggesting buyers are losing momentum. After three tops occur and the stock fails to push through resistance, sellers often gain control and price falls follow. As the price falls, it puts pressure on all those traders who bought during the pattern to start selling. If the price can’t rise above resistance there is limited profit potential in holding onto it. As the price falls below the swing lows of the pattern, selling may escalate as former buyers exit losing long positions and new traders jump into short positions.
Yes, we work hard every day to teach day trading, swing trading, options futures, scalping, and all that fun trading stuff. But we also like to teach you what’s triple top chart pattern beneath the Foundation of the stock market. Each day we have several live streamers showing you the ropes, and talking the community though the action. The downtrend begins once this level is broken, and support is now 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. Lower volume during the peaks indicates the bulls are losing momentum.
Technical traders watch for increased selling volume on the breakdown for confirmation. The breakdown point under support becomes the new overhead resistance on any counter-trend bounces. As the decline pauses, dip buyers and remaining bulls see the retreat as a buying opportunity. This propels the stock up to make another test of the resistance zone. The price rises towards but fails to eclipse the previous high peak, forming the second peak at a similar level.
Volume
Correct identification, combined with analysis of volume and other indicators, helps gauge the strength of ensuing downtrends. This reliable reversal formation provides clues on shifting market psychology and presents opportunities for technical players. Price patterns occur on any charting period, whether on fast tick charts used by scalpers or yearly charts used by investors. Each pattern represents a struggle between buyers and sellers, resulting in the continuation of a prevailing trend or the reversal of the trend, depending on the outcome. Technical analysts can use price patterns to help evaluate past and current market activity, and forecast future price action in order to make trading and investing decisions.
Figure 2 shows a triple bottom that once developed on a daily chart of McGraw Hill shares. Technicians wait for a break of support before confirming the reversal. The breakdown point is sometimes the trough low between the second and third peaks.
Triple Top Pattern Formation
- When sellers prevail after three failed peaks, the triple top signals the uptrend may be over.
- The start and end points of each price line, except for the last one (point 7), are located in 5/5 pivots.
- Figure 2 shows a triple bottom that once developed on a daily chart of McGraw Hill shares.
- Profit-taking and selling pressure kicked in, causing the stock to retreat from the first peak.
- No patterns, strategies, or techniques work all the time — this includes the Triple Top pattern.
If it fails, that’s when a False Break occurs and the market could possibly re-test the lows of Support. Traders must use caution to avoid seeing patterns that aren’t there. Strictly Necessary Cookie should be enabled at all times so that we can save your preferences for cookie settings.
Multiple minor peaks around the same level make it hard to discern the exact significant tops to trade from. These ten possible risks should be taken into account when employing the triple top pattern as part of a trading decision. The triple top generalizes across diverse markets and timeframes. Traders apply the edge to virtually any tradable instrument, from stocks to forex and commodities.
#1 The False Break
No, traders do not automatically exit longs or enter shorts when the triple top pattern completes. The completion of a triple top pattern does not necessarily mean traders should immediately close out long positions or initiate new short positions. Instead, the proper trading response depends on how the pattern breaks out – whether the price breaks above resistance or falls below support. Keeping the stop loss above the third peak high lets traders hold shorts confidently as the breakdown accelerates. This approach mirrors the pattern psychology of buyers making three failed attempts before sellers take over. Tying the stop loss to key technical levels confirms whether the pattern is genuine and reduces the likelihood of getting stopped prematurely.
Utilizing the triple top pattern provides objective, high-probability trading opportunities with defined risk. Combining pattern analysis with prudent risk management practices enhances overall trading performance. It exemplifies using probability theory and technicals to identify favourable trade setups. The rising volume of moves up to resistance reflects enthusiasm. Declining volume on the pullbacks and the move up to the third peak hints at waning appetite. Finally, heavy selling volume signals conviction behind the breakdown.
If the volume doesn’t increase, the pattern is more prone to failure (price rallying or not falling as expected). The stop loss is then placed above the third peak’s high to give the pattern room for follow-through. The profit target can be set near the level of the troughs or lower if the asset begins collapsing rapidly after the breakdown. Short positions are held with confidence as long as the price remains below resistance. Meanwhile, the bears gain strength as selling pressure intensifies after each peak. The flipping between buying enthusiasm and selling absorption reflects changing market psychology.
Once the third peak forms, sellers take decisive control as buyers become unwilling to chase new heights. This translates to a breakdown of support and confirmation of the trend reversal. With buyers exhausted after three failed peaks, the asset then breaks support, which confirms the triple-top reversal pattern. The three peaks rotating between resistance and trough supports reveal fading upside momentum and emerging downside conviction.
