Sentiment: Bearish
Direction: Reversal
What Is The Triple Top Chart Pattern?
A Triple Top is a bearish chart pattern, commonly found at the “top” of a trend ahead of a reversal.
A triple top includes three roughly equal sized peaks. The reversal is typically confirmed with a break of neckline support.
How To Identify The Triple Top Pattern?
You can identify a Triple Top when price action meets a resistance trendline three times and forms three peaks roughly equal in size.
These peaks are separated by two troughs at support.
What Is The Psychology Behind The Triple Top Pattern?
The Triple Top pattern is a bearish chart pattern that can provide traders with valuable insights into the market’s psychology.
It’s characterized by three consecutive peaks (the tops) of approximately the same height, with two troughs in between (the bottoms).
The pattern typically takes several weeks or months to form and is a sign of a potential trend reversal.
Traders interpret the pattern as a sign of a transition from a bullish market sentiment to a bearish market sentiment.
The pattern represents a period of indecision in the market, where buyers and sellers are evenly matched, but ultimately sellers gain momentum and push the price lower.
The psychology behind the triple top pattern is similar to that of the double top pattern.
The first peak represents a period of strong buying pressure, where buyers are in control and pushing the price higher.
However, sellers eventually step in and push the price lower towards the first trough.
The first trough represents a period of indecision in the market, where buyers and sellers are unsure of the direction of the trend.
As the pattern continues to form, the price moves higher again towards the second peak.
The second peak represents a retest of the previous resistance level, where sellers are in control and pushing the price lower again towards the second trough.
The second trough represents another period of indecision in the market. The pattern then repeats with a third peak, followed by a third trough.
Once the price breaks below the third trough, it’s a signal that the trend has reversed, and traders may enter short positions.
Encyclopedia of Chart Patterns (Wiley Trading)
18% OffHow To Trade The Triple Top Pattern?
To trade the Triple Top pattern, traders typically wait for the price to break below the third trough with a strong volume surge.
The breakdown should ideally occur on higher than average trading volume, as this confirms that there is significant selling pressure behind the move.
Traders may enter a short position once the price breaks below the third trough, with a stop loss placed above the third peak.
The profit target can be set based on the height of the pattern, with the expectation that the price will move at least the same distance as the pattern’s height in the direction of the breakout.
Alternatively, traders may wait for a pullback to the third trough before entering a short position.
This approach can provide a better risk-to-reward ratio, as the entry price is closer to the third trough, and the stop loss can be placed tighter.
However, it may also result in missing out on some of the initial gains from the breakdown. Ultimately, the best approach will depend on the trader’s risk tolerance, trading style, and market conditions.
It’s worth noting that the triple top pattern can also result in a false breakdown, where the price briefly breaks below the third trough before reversing course.
Traders should be aware of this possibility. Also be sure to use technical indicators and other tools to confirm the validity of the breakout. Access these tools at TradingView.
Triple Top Performance Expectations Explained
Once you have identified a triple top, you can expect the market to be bearish when support is broken.
To find potential targets, measure from the highest peak to the support.
Project the measurement multiplied by 49% to the support.