Triple Top Pattern: The Ultimate Guide

Chart pattern trading strategies such as the Triple top chart pattern trading strategy try to leverage a compelling yet straightforward chart pattern as the trading tool. Using a reversal strategy, you can benefit from being part of a new trend from the very beginning.

Crypto traders can use these trends, as the triple bottom could signal the beginning of a bullish trend, while the triple top could signal a correction shortly. Unfortunately, there is little chance of spotting a triple top or bottom pattern where the horizontal resistance and neckline are the same level. However, the rarity of these patterns makes them highly influential.

Simple ingredients are required to spot a triple pattern, and once seen, can be used to formulate a trading strategy based on technical analysis. Once these patterns are spotted, the triple top and bottom patterns will be reviewed and developed as a trade idea.

What is the triple top pattern?

Using textbook definitions, the triple top pattern is one of the many reversal patterns whose visual representation changes trend control.

Triple top reversals look textbook perfect because the market cannot break through a peak at a price level with nearly or the same height. In the case of the third peak, or the third reaction of the off resistance, indications are that selling interest outweighs buying interest, indicating that the trend is about to reverse.

Triple top pattern

There are some rules which you should follow when approaching the triple top pattern:

Rule no 1: We need a precedent trend in the background for the reversal to happen. For a triple top reversal, we need to have a bullish trend that has reached a high swing area from where we can get enough selling activity to stop it from moving forward any further.

Rule no 2:  The strength of the bullish trend could influence the strength of the sell-off.

Formation of the triple top pattern

A triple top trading pattern creates three peaks at nearly the same price level. These peaks constitute resistance. A swing low is the decline between the peaks. The pattern is complete if the price falls below the swing lows following the third peak. At this point, traders watch for a further decline to occur.

Triple tops resemble the head and shoulders pattern consisting of three peaks. However, in this case, the middle peak is nearly as high as the others rather than being higher. A similar pattern exists in a double top pattern, while the price touches the resistance twice, creating a pair of highs before falling.

A triple top pattern is traded essentially the same way as a head and shoulders pattern. For example, in the case of a stock with a price peak of $119, a pullback to $110, a rally to $119.25, a pullback to $111, a rally to $118, then a drop below $111. It would be a triple top and might signify the stock is heading lower. Therefore, the chart that you saw below is appropriate.

What does the triple top pattern represent?

It is a relatively straightforward formation to make a triple top. It is characterized by three consecutive highs reaching the same level or near it. But, first, the price action must trade in an uptrend for this chart pattern.

To achieve a perfect triple top, the horizontal resistance must be perfect, and the neckline must be perfect. Unfortunately, finding such patterns is almost impossible because it requires three peaks to create a perfect triple top. As a result, leave room for a neckline to bend or one of the peaks to print predominantly below or above the horizontal resistance.

These are the three mandatory elements for the triple top trading pattern to take place:

An uptrend – The asset price must trade in a higher range of highs and lows.

Horizontal resistance – in technical analysis, a neckline connects lows between three peaks, which brokes to signal that a formation activates.

It is a sign of a powerful uptrend when the triple top pattern is spotted. When one bull found enough strength and power to test the horizontal resistance three times in a row, it suggests they had a very positive sentiment. When a bull tests the horizontal resistance twice, the price usually reverses.

As a result, the triple top pattern facilitates trend change. Buyers had long dominated and gained in the upward trend. In the wake of bulls' dominance, which will undoubtedly end after the three unsuccessful attempts to break resistance, sellers gain ground in the game, threatening to reverse the price action trend.

When the resistance dulls a third time, the likelihood of breaking the neckline increases; when this happens, the triple top pattern enters play. Due to this, the neckline is an integral part of the triple top pattern, as its break initiates the pattern and provides the stop loss and take profit levels.

This pattern is rare and powerful because of its design, but it is also infrequent. Three consecutive attempts to break higher by buyers failed, making the reversal extremely powerful. As a result of these failures, they feel vulnerable and exhausted, giving sellers an excellent chance to wipe out earlier gains of the opposite side.

There are fewer triple top patterns than the double top, as fewer peaks happen. As a result, there's also a reduced possibility of a breakout since there's no energy left after three failures.

Nevertheless, its most significant vulnerability is a rare chart formation. If you are looking for a clean triple top pattern that matches all of the criteria, you need to spend some time on a chart.

Example of the triple top pattern

Historically, a triple top represents a bearish reversal pattern in an uptrend. For example, a USD/CAD 4H chart shows a move to the left as the pair moves aggressively higher.

A $1.29 horizontal resistance fails to illustrate clearly, causing the first correction in the trend since it began.

The buyers use this correction to refocus and regain confidence and launch another assault at the same level, but the attempt is again unsuccessful.

Multiple attempts are allowed to reach $1.29 again, with choppy price action from the $1.28s just before the third peak. As the price action corrected downward again, buyers pressed the price action upward briefly above $1.2910 and then corrected lower.

The example above defines the potential power of triple tops. The third attempt failed to clear this resistance, and multiple attempts to overcome it, leading to a bearish candlestick pattern that just invited more selling pressure. The bears were able to wipe out all previous gains in a matter of days after the bulls were overwhelmed by all these failures.

You may find it frustrating to wait for the perfect triple top pattern. But, on the other hand, when you identify it, there is still some room for specific defects, such as an unequal peak height or a bent neckline.

How to trade with the triple top pattern?

The asset price will fall below pattern support for some traders, which may prompt them to enter a short position or exit an extended position.

The pattern has a support level at the swing low that is most recent after the second peak. Alternatively, a trader could draw a trendline connecting the swing lows between the peaks. If the price falls under the trendline, the pattern is complete, and the price will probably continue to decline.

The traders will observe the volume of trades as the price falls through support to confirm the pattern. The volume should increase, indicating a strong desire to sell. A pattern that doesn't increase volume is more likely to fail (price rally or fall against expectations).

The upside target of this pattern equals the height of the patternless breakout point. A rough estimate would be this value. In some cases, the price will drop much lower than the target, while others will not.

Besides the triple top, there are other technical indicators and chart patterns. For example, a trader may see whether the MACD crosses negatively following the third peak or if the RSO drops out of the overbought territory to confirm a price decline.

When the asset price falls below the pattern support, traders may consider entering a short position or exiting an extended position. After the second peak, the most current swing low represents the level of support for the pattern. Alternatively, traders could draw a trend line between the swing lows between the peaks. A price decline below the trend line indicates that the pattern is complete, likely to decline further.

If the price drops through support, traders will observe huge volumes to confirm the pattern. A significant volume increase suggests intense selling pressure. The pattern fails more likely if the volume does not increase (the price rallies or fails to fall as it should). The pattern provides downside targets similar to the pattern height subtracted from the breakout point. These targets are estimates. There are instances when the price falls below the target; other times, it does not reach. Another chart pattern or technical indicator presents along with the triple top.

The traditional trading strategy

• Entry point: open a short position next to the neckline.

• Stop-loss: The stop-loss should place over the neckline.

• Advantage: The trade will likely be successful.

• Disadvantage: Pullbacks tend to overshoot the neckline, which in turn allows the stop-loss to reach blindly. To avoid this, open a position only after the neckline has retraced. By doing so, it will be more convenient to place a stop-loss.

The aggressive trading strategy

• Entry point: Once a second or third peak forms, take a short position.

• Stop-loss: The stop-loss is in the vicinity of the highest peak.

• Advantage: The stop-loss is present near the entry point, which means there are high gains and low risks.

• Disadvantage: The percentage loss is more remarkable since the triple top pattern isn't confirmed yet.

However, make sure you incorporate it into your plan before using it. Don't let the market dictate your decisions.

Special considerations for a triple top

This triple pattern has a disadvantage of low risk/reward ratio like the double top and bottom. However, the pattern's height is approximately the same since both the stop loss and target compute. Most professional traders opt for patterns with more significant potential profit than risk.

Placement of a stop loss within the pattern, not above or below (triple top or triple bottom), reduces risk while maximizing reward. A portion of the pattern height is considered in the risk calculation, while the target calculation considers the full pattern height.

There could be two profit targets depending on whether the trendline or the recent pullback low is an entry point. Since the pattern's height can be added to either of these breakout points, it is possible to have two profit targets. To maximize profit from a trade, traders should select the breakout target level they prefer.

Limitations of the triple top patterns

Triple bottom chart patterns are incredibly uncommon but incredibly effective. A consecutive occurrence of three equal lows occurs relatively rarely. The double bottom chart pattern is usually present because it only requires one low to occur.

The pattern's scarcity, however, makes it remarkably powerful and influential. Three attempts to break below the horizontal support left the sellers extremely fatigued, exposing them to a rally because buyers now feel much more confident after defending the horizontal support.

There is no weakness present in the triple bottom formation. However, one of its most well-known limitations is that it does not happen quite often. Otherwise, it would be a highly effective reversal pattern.

What is the difference between the tripe top and triple bottom patterns?

Triple top and triple bottom are the types of reversal chart patterns. They are similar to the double top and double bottom chart patterns.

Trading with a triple top

Traders with triple top chart patterns restrict to specific rules.

1. Firstly, one must establish whether the market is trending up or down. For the triple top to form at the end of an uptrend, it is essential that the prior trend also be up.

2. Traders should detect the formation of three rounding tops.

3. Trading short should only occur when the price breaks out of the neckline or support level.

Stop loss

It would help to place stop losses at the third stop of a triple top chart.

Price target

You should set the price according to the distance between the neckline and the top.

Trading with triple bottom

There are a few rules to follow to trade triple bottom chart patterns.

1. The 1st step is to know whether the financial market is up or down. Given that the triple bottom occurs at the end of a downtrend, the previous trend should also be downward.

2. In addition to identifying three rounding bottoms, traders should note the size of each bottom.

3. Traders should only wait for the price to break out below the resistance level or the neckline to enter the extended position.

Example

Following the formation of the triple bottom pattern at the end of the downtrend, we can see how bullish reversal occurs:

Stop Loss

When using a Triple Bottom pattern, one should place a stop loss at the third bottom of the pattern.

Price Target

You should set the price target at the same distance between the neckline and the bottom.

Bottom line 

In the case of the triple top pattern, traders can detect an upcoming price correction with this bearish reversal pattern. Triple bottom patterns are also indicative of the beginning of a bull market. However, triple tops and bottoms have limitations, so when they are confirmed, use them wisely when trading with larger market capitalizations.

It is a measurement of the value of a cryptocurrency to measure its market capitalization (or market cap). 

An example of a triple top is the development of three peaks in the same direction, separated by pullbacks. In the case of a triple top, the price will slide further once the price breaks below pattern support. After a triple top, a trader exits long positions or enters short positions.

When trading the pattern, you can place a stop loss above the resistance (peaks). The downside target is estimated when the pattern's height excludes the breakout point.

Another indication that a potential triple top might have completed will be to watch volume as price trades lower. It is generally known as a positive sign that volume increases when the buying pressure has dried up, and sellers have begun to assert themselves.

The strong reversal often associated with these patterns makes it essential to keep an eye on volume as the price comes down to determine whether the pattern will work out. If there is no selling volume, then the likelihood of this pattern working out can significantly decrease.

Although the triple top pattern is a powerful reversal pattern found on any timeframe, you should follow a tested strategy with strict risk control to maximize your chances of success.