Triple Top Pattern Analysis | How the Triple Top Reversal Pattern Works

Triple Top Pattern : A triple top chart pattern is formed by three peaks that are moving in the same area as pullbacks. It is considered as a complete indicating further price slide once the price move below pattern support. Trader exits long/enter short when the triple top completes and if a trading pattern stop loss is placed above resistance. The downside target indicates the height of the pattern subtracted from the breakout point.

How a Triple Top Works : The pullback occurs between the peaks called a swing low. After the third peak, if the price falls below then the swing low pattern is considered complete and traders watch for a further move to the downside. The middle peak is equal to the other peaks rather than higher. This pattern is the same as the double top pattern. When the price touches the resistance area twice it will create a pair of high points before falling.

Significance of the Triple Top

The triple top patterns show that price unable to penetrate in areas of the peaks. When the price falls it puts pressure on all traders who bought during the pattern to start selling. If the price cannot rise above resistance the profit is limited. In a situation when the price falls below the swing low of the pattern selling may escalate as former buyers exit losing a long position. Then a new trader’s jump into short positions called the psychology of pattern. It will help fuel the selloff when the pattern completes. The pattern is complete leading traders to believe assets continue to fall. Here price can be recovered and moved above the resistance area. The trader will place a stop loss on the short position above peak as swing high within the pattern. It will move the risk of the limit of the trade if the price doesn't drop and rallies. The formation of a reversal pattern takes three to six months for formation. In this development, the pattern will take the shape of a double top and other patterns as well. So traders combine the triple top with other indicators as MACD to confirm the bearish crossover after the final high.

Importance of the Triple Top

The pattern indicates that the price action is unable to break through the upper peaks. They will show after multiple failed attempts to trade high stock. It is unable to find buyers at the top end of the range. Technical traders will understand the price to restrict the rise above the resistance level and have no business holding onto the stock. So Investors who hold the underlying begin selling the new traders jump and short the stock pushes the price down below the lower trend line. So stock breaks down the fueling selloff.

Attributes

Breakout Confirmation : The confirmation of pattern is close below the lower trend line that is drawn horizontally across the intervening low with above-average volume.

Measuring : Here we can take the distance between the low to the top of the two high then subtract the amount from the breakout level.

Volume : The volume increase during the formation and increases below the bottom support level.

Conclusion

The triple top is a bearish reversal chart pattern that signals the seller that is coming to push the stock lower. The pattern is of good indication as it is time to get out of the stock/ jump on the bandwagon and sell the stock short. Traders will combine technical indicators to confirm the triple top pattern and don’t make a move until the pattern is confirmed. The reversal trading strategy gives an opportunity to be part of a new trend right from the beginning.

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