Made up of three peaks, a triple top indicates that the asset may no longer be coming up. If the pattern occurs right into the support level in a higher timeframe, it’s best to avoid trading it because the chances of failing are quite high. Another method of entering the trade after the breakdown of the support level is to wait for the price to come and retest the breakout level. To estimate your profit target, measure the height of the chart pattern from the breakout level, and project it to the downside. So, when the third swing high forms and the price gets rejected at that peak level with a bearish reversal candlestick setup, you may go short at that point. So, a pullback to a resistance level in a downtrend, which, of course, will appear like an uptrend in the lower timeframe, can create a high probability setup.
The three consecutive peaks make the triple top visually similar to the head and shoulders pattern; however, in this case, the middle peak is nearly equal to the other peaks rather than being higher. The pattern is also similar to the double top pattern, when the price touches the resistance area twice, creating a pair of high points before falling. Yes, cryptocurrency charts are filled with various crypto patterns. They can signal positive and negative upcoming market behavior depending on the pattern.
That’s why you should look for a breakout of neckline with a big bearish candlestick. The estimated target for the decline is the height of the pattern, about $3.25, subtracted from the $34 breakout point. The target was reached before the price started bouncing, although that won’t always happen. Triple tops are traded in essentially the same way as head and shoulders patterns. In order for the pattern to be considered a triple top, it must occur after an uptrend. The opposite of a triple is a triple bottom, which indicates the asset’s price is no longer falling and could head higher.
It’s worth noting that the three peaks should be of relatively similar height. The middle one is slightly higher than the other two, however, the “shoulder” peaks should be of very similar height. Once traders manage to identify the pattern, they can start using it to make their predictions. Once you have identified this chart pattern in the stocks, you can trade accordingly as discussed above. Step 3 – Place a stop loss order above the highest peak of the triple top pattern to prevent against loss in case the market moves against your position and the triple top is invalid. Double tops are already deceiving patterns, tricking traders into thinking the rally will continue yet a second high forms.
When the triple top formation occurs, it implies an asset may have concluded a recent rally and is likely to reverse course and begin to fall more substantially than previous legs. We’ll break down this popular technical tool so you understand precisely what it is, how to identify it, and (most importantly) how to potentially profit from it. The key here is to have the Triple Top pattern lean against a higher timeframe Resistance.
We have covered how you can take advantage of this in an article called night trading strategies. If you are trading stocks, you probably know that short is a lot more difficult to trade than long. Both tops and bottoms could be at slightly different levels and unequal distance between the tops (and bottoms). Using the same example, if the top is roughly $119 and the support line is $108, the difference is $11. Therefore, a trader might expect the price to fall $11 below the support line once it’s breached. In this case, it would mean the price is expected to continue to slip down to $97.
Trading Volume at Peaks and Lows
Your profit target should be at the usual estimated target, so you need to consider if the profit potential is worth the risk before making the trade. Note that the price stalled for some time but later descended beyond the profit target. First, with two previous swings reversed at the peak level, there is already an established strong resistance at that level. So, there is a high chance that the price will reverse again at that level. While the peaks may occur around the same price level, they don’t have to be at the exact same level.
Thus, it’s either the bulls are not aggressive enough to push the price beyond that level or they have simply given up on pushing higher. While the pattern can occur in any timeframe, considering the time it takes to form, you are more likely to see the pattern in an intraday timeframe than in the daily or higher timeframes. Harness past market data to forecast price direction and anticipate market moves. From beginners to experts, all traders need to know a wide range of technical terms.
- When used in conjunction with other analysis tools, triple top patterns can prove an invaluable addition to your trading repertoire.
- The spirit is three attempts at resistance, followed by a breakdown below support, with volume confirmation.
- In the first method, Trigger sell order just after the breakout of the support line with a big candlestick.
- Certain technical chart patterns appear with enough occurrence and frequency that decades of study has yielded remarkably predictable results that can be used to increase the probability of success.
- If you want to take a little bit more risk and be more aggressive you can also enter at third resistance test in anticipation that the triple top reversal will hold.
Typically, once a triple top pattern is formed (i.e. once the support line is breached), it’s expected the price will drop equivalent to the difference between the top formations and the support line. A triple top pattern is a potent weapon to have in your trading arsenal. This powerful technical tool helps traders identify price reversals following a rally.
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The triple top pattern is one of the price action chart patterns that can be used to formulate a trend reversal trading strategy. You should always confirm the pattern by a clear break below the support level and use technical indicators and chart patterns to support your analysis of the reversal. Also, consider the overall market conditions and the fundamentals of the underlying stock or asset. The Triple Top Reversal is a bearish reversal pattern typically found on bar charts, line charts and candlestick charts. As major reversal patterns, these patterns usually form over a 3 to 6 month period. Note that a Triple Top Reversal on a bar or line chart is completely different from Triple Top Breakout on a P&F chart..
Volume Confirmation
A descending triangle forms with an horizontal resistance and a descending trendline from the swing highsTraders can… In this USDCAD chart, you can see that the breakout candlestick was too long. Chasing the trade and entering the trade at that point because you don’t want to miss the move would make it difficult to place a reasonable stop loss.
Mistakes to avoid when trading the Triple Top chart pattern
Understanding crypto patterns is a crucial aspect of technical analysis. Doing so can help traders and investors make informed decisions about buying and selling cryptocurrencies. It’s therefore useful to understand technical analysis and have a general idea of the market’s behavior.
Ascending and descending triangles are two more common patterns we see develop within the crypto market. There can be two types of wedges — rising wedges and falling wedges. In the case of a Triple Top chart pattern, the stop loss should be placed at the third top of the pattern. Once the pattern confirms a large price movement forms as sellers chase the move down and longs who took a position at the neckline begin to cover. HowToTrade.com helps traders of all levels learn how to trade the financial markets. At the same time, the sellers are starting to become a bit more aggressive as they are prepared to pay the higher price and we reach a point of equilibrium between the buying and selling power.
It shows that the price of an asset is no more falling and could get higher. Your profit target can still be at the usual place — an estimate of the height of the triple top pattern projected downwards from the breakout level. If the breaks above the resistance level during the third peak and later falls below the resistance level, it’s a good opportunity to go short.
Then you want to avoid shorting the breakdown because your stop loss is too wide (and the low of the pullback is where buying pressure is lurking which is not a good thing). So, the First Pullback offers them a low-risk opportunity https://1investing.in/ to catch the next wave of the move. 1.When a pullback occurs, it gives you a logical level to set your stop loss. For example, your stop loss can go above the highs of the pullback (instead of the highs of the Triple Top pattern).
The probability of three tops happening at the same exact price level is almost impossible. You’ll often find that the three tops have slight variations, but they happen near the same price zone. What is more important is the closing price, which can align perfectly if the location of the triple top pattern is good. The second criterion of tradable triple top patterns is that you need to allow a pips variation between the three tops. You need to identify three rounded tops in order for the triple top patterns to be considered tradable.
As we said before, it is a fairly simple chart pattern, especially when compared to other advanced patterns. The significance of triple top chart pattern trading strategy is that it gives you the opportunity to enter a new trend right from the start. At times, a triple top will form and complete, causing traders to believe the asset will keep on falling.