The triple top pattern is a bearish reversal chart pattern. It signals that buyers are losing strength and sellers are preparing to take over. The pattern is usually seen after an uptrend, indicating an upcoming downtrend once support is broken.
Understanding the intricacies of the triple top chart pattern helps you avoid false breakouts at resistance and provides a clear entry, stop loss, and profit target. Additionally, it works across multiple markets, including forex, stocks, crypto, and commodities.
So, without further ado, let’s dive in!
What is a Triple Top Pattern?
The triple top pattern is a trend reversal pattern where price tests the same resistance levels three times, but fails to break it.
The pattern is recognized by its three peaks at approximately the same price level, as well as a horizontal neckline (support), which connects the pullback lows.
After its formation, the triple top chart pattern is confirmed when the price breaks below the neckline.
Triple Top vs. Similar Patterns
There are a couple of price action patterns that commonly get mistaken or mixed up with the triple top. One is the double top pattern, which follows the same idea, but with two peaks instead of three. This pattern, of course, is less of a reliable reversal signal than the triple top.
Another pattern you might confuse with the triple top is the head and shoulders pattern, which looks similar to triple top, but has a higher middle peak (head). This distinguishes the head and shoulders from the triple top pattern, as the latter has equal peaks.
There’s also the triple bottom pattern, which is basically the same but upside down.
How the Triple Top Pattern Forms?
The triple top pattern forms in five major stages, which we’re going to overview shortly.
- Strong Uptrend: In the initial phase, the price is in a bullish rally before the pattern starts to form.
- First Rejection at Resistance: Next, buyers attempt to break resistance but fail, leading to a pullback.
- Second Attempt at Resistance: After the first pit is formed in the pattern, buyers try again, but the resistance level holds firm.
- Third Rejection & Weakening Momentum: As a final blow, the bears try to break the resistance one last time and fail yet again, which signals exhaustion in the uptrend.
- Breakdown & Confirmation: Finally, the price breaks below the neckline, triggering a reversal. And just like tha
Market Psychology Behind the Triple Top
To start and understand the market psychology behind the triple top pattern, you need to take a step back and begin your journey from the bullish trend that was established before the pattern.
This trend indicates increasing buying pressure, making the bulls stronger and stronger with every step towards the chart’s peak. Then, just when the buyers think they’re going to drive the prices further up, they meet resistance.
From there on, each failed breakout attempt weakens buyer confidence. The bears notice this and start entering the market with more force, increasing short positions after each rejection.
Something to note here is how retail traders usually react during the formation of the triple top pattern. They often get trapped trying to buy the breakout, only to see the prices collapse.
On the other hand, some traders forgo the confirmation process and open a rushed position, which can lead to epic failures. The key here is to wait for the neckline break; it confirms that sellers are in control.
Additionally, another factor you need to be aware of is the trading volume, which typically spikes on the breakdown, reinforcing bearish momentum.
Ideal Conditions for a Triple Top to Form
To ensure your trading the triple top pattern in its prime time, you need to consider some factors. First, you need to think of the triple top pattern and the bullish or bearish state of the market. The stronger the uptrend is and the more time the price has had to rally, the more potent will the pattern become.
At the same time, there should be a clear resistance level that has undergone multiple rounds of testing. Aside from this resistance level, it’s also important to have a well-established neckline acting as support.
Something else you should know about the triple top pattern is that it works better when it occurs in longer timeframes, for example H1, H4, and daily. Lastly, the pattern is more reliable when volume increases on rejection and breakdown.
How to Trade the Triple Top Pattern?
There are four main bases you need to cover when trading the triple top candlestick pattern. These bases include your entry strategy, stop loss placement, take-profit target, and risk management.
Entry Strategy
Your ideal entry point occurs after the price breaks below the neckline, which marks the beginning of the end for the uptrend. After the breakout, the price tends to retrace back to the neckline, which by that time would act as resistance. This retracement offers a better entry point because it increases the probability of the breakdown being genuine.
It goes without saying that if the price doesn’t retest the neckline or does but quickly rebounds above it, it could indicate a false signal. Caution and patience are, therefore, crucial.
Stop Loss Placement
One of the safest methods to determine your stop-loss level with a triple top pattern is to place it right above the last peak of the pattern. That way, you’ll avoid getting stopped out in case the price retraces a little bit or makes a failed attempt to break out.
The reason you place your stop loss above the peak is to ensure you’re covered in case the market tests the resistance again before confirming the downtrend. So, if the price goes higher than the last peak, it could be a sign that the bullish trend is not over yet.
Something that could help you determine the appropriate stop loss distance based on how much the market is typically moving is the Average True Range (ATR) indicator, which measures volatility.
Take Profit Target
The general rule of thumb is to set a take-profit target by measuring the height of the pattern. So, basically, you measure the vertical distance between the resistance level (top of the pattern) and the neckline (support). This gives you the range the price has typically travelled in the pattern.
Once the breakout takes place, subtract the same distance from the neckline to set your take-profit level. This way, you can estimate how far the price might move in the downtrend simply but effectively.
Risk Management
Confirmation is crucial before entering a trade. So make sure not to enter too early and get thrown off your game by false breakouts.
Another good idea is to use supporting indicators, such as the Relative Strength Index (RSI), MACD, and volume. They can help you indicate the weakness in the trend and confirm momentum.
Lastly, consider your risk-to-reward ratio. It’s best to aim for a minimum 1:2 ratio, meaning that for every unit of risk (the distance from your entry to stop loss), your target should be at least twice as far.
Common Mistakes to Avoid
To go over everything once more in a way that’s easy and quick to assess, here’s a list of common mistakes to avoid while trading the triple top chart pattern:
- Entering too early before the neckline breaks.
- Ignoring fundamental news that could override technical patterns.
- Mistaking a range-bound market for a triple top.
- Forgetting stop losses, leading to unexpected reversals.
Pros of the Triple Top Pattern
- Reliable Bearish Reversal Signal: When confirmed, it indicates a strong downtrend.
- Clear Entry & Exit Points: Defined resistance and neckline make it easy to trade.
- Works Across Markets & Timeframes: Effective in forex, stocks, and crypto.
- Combines Well with Indicators: Volume, RSI, and MACD improve accuracy.
- Good Risk-to-Reward Ratio: Provides logical stop-loss and take-profit targets.
Cons of the Triple Top Pattern
- Takes Time to Form: Unlike other patterns, it requires multiple resistance tests.
- False Breakouts Are Common: Price can temporarily break the neckline before reversing.
- Not 100% Reliable: It can fail if external factors (news, economic events) override technical analysis.
- Requires Volume Confirmation: Without a volume spike, the breakdown may be weak.
- Difficult to Spot for Beginners: Can be confused with a range-bound market or a double top.
Wrapping Up
The triple top is a powerful trend reversal pattern that signals bearish momentum. To be successful with the pattern, you need to trade with discipline and patience.
One of the main benefits of the triple top chart pattern is its ability to combine with other technical indicators, such as volume, RSI, and MACD. Still, backtesting and proper risk management are crucial when it comes to successfully trading the pattern.
So, if you’re confident that you understand the triple top pattern and its ups and downs, head over to ITBFX, open a demo account and refine your trading plan and strategies until you can make real money. To learn more about technical analysis you can follow us on YouTube.
Yes, the pattern can fail if the price doesn't break the neckline with strong momentum or reclaims resistance.
The formation time varies based on the timeframe. It can take days to weeks on a daily chart or hours on shorter timeframes.
Yes, it's widely used in forex, especially on longer timeframes. However, traders should combine it with indicators like RSI, MACD, and volume.
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