Triple Top Pattern: What is it? How to trade it?
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It gives enough room for the trade to work, but if the pattern fails, it gets you out without losing too much. Another trigger — though rarer but probably more effective — is a false break above that top level. The distributive phase of the market cycle is when the institutional investors — banks, hedge funds, and investment funds — gradually offset their long positions and go short. To put it in another way, the price advanced to the same level on three occasions, and each of those occasions, it could not significantly move beyond that level.
A step by step guide to help beginner and profitable traders have a full overview of all the important skills (and what to learn next 😉) to reach profitable trading ASAP. That was a good indication to go short if you had missed the neckline breakdown. A more important thing to consider is the volume, especially if you are trading exchange-traded assets, such as stocks, futures, and commodities.
Now, you can’t trade the https://1investing.in/ when it’s obvious, and you don’t want to chase the market when it breaks below Support. The increase in volume can confirm the validity of the price breakout. A breakout with no noticeable increase in volume, on the other hand, has a far greater chance of failing since there is no enthusiasm to back the move, particularly if the move is to the upside. Similarly, the degree to which price fluctuates within a price pattern can be useful in analyzing the validity of a price pattern, as well as in predicting the magnitude of the eventual price breakout. Patterns showing larger degrees of volatility are likely to result in more significant price moves once price breaks out of the pattern. You can enter right at the breakthrough, but this entry point isn’t the safest because the asset can potentially shoot up in price shortly after.
- While the top which the price is trying to break has become a strong resistance level, the neckline constitutes a support level.
- A trend line is drawn between each retest of the neckline with each touch to highlight support.
- This bullish chart pattern is formed when two converging trend lines slope downward.
- More or less we can note that the inverse “V” top is presented in all three peaks.
- Each successive attempt is typically accompanied by declining volume, until price finally makes its last attempt to push down, fails and returns to go through a resistance level.
One of the most effective trade triggers you can use at that level is a bearish reversal candlestick pattern, such as the bearish pin bar, engulfing bar, or inside bar. The GBPJPY D1 chart below shows a down-trending market with a pullback to a known resistance level. Of course, the triple top pattern does fail on many occasions — no price action chart pattern works all the time. The statistics for the triple bottom pattern strategy indicates it’s a lot less frequent than the double top chart pattern strategy (a short strategy). It’s pretty demanding to make a triple top pattern trading strategy backtest with strict trading rules and settings because of all the rules required. It’s possible, of course, but we believe some already published stuff is good enough.
Bar Play Trading Pattern
The first peak is formed after a strong uptrend and then retrace back to the neckline. Another great way to confirm a trend reversal when using the triple top pattern is to draw Fibonacci retracement levels. From the example below you can see how the 50% Fibonacci retracement level can be used as another confirmation tool to enter a trade after the breakout.
In this case, the higher timeframe should already be in a downtrend or the distribution phase of the market cycle where a downtrend is expected. Sometimes, the price can turn and head upwards after the pattern has completed. So, you should always use a protective stop whenever you are in a trade. The neckline can either be horizontal if the two swing lows are at the same level or slightly inclined if the two swing lows are not at the same level. Deepen your knowledge of technical analysis indicators and hone your skills as a trader.
However, to increase the chances of success, it is important to confirm the pattern with other technical indicators and develop an effective trading strategy. For that purpose, we have decided to show you two examples – the triple top pattern combined with Fibonacci levels and the MACD (Moving Average Convergence Divergence). So, in a nutshell – to identify, use and trade triple top chart patterns, follow these 5 steps below.
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- We will first examine the individual parts of the pattern and then look at an example.
- Now, you can’t trade the Triple Top chart pattern when it’s obvious, and you don’t want to chase the market when it breaks below Support.
- As the price declines, it puts pressure on all the traders who bought during the pattern to begin selling.
A neckline is a line meeting the lows of swing waves that are making a triple top pattern at the resistance level. The triple top is used in technical analysis to predict the reversal in the movement of an asset’s price. A triple top occurs when the price peaks, retraces, rallies to a similar peak, retraces, rallies to a similar high again then declines again. Traders can choose which target breakout level they prefer in order to extract more profit from the trade. As with double tops and bottoms, the risk/reward ratio is a drawback of these triple patterns. Since both the stop loss and target are based on the height of the pattern, they are roughly equal.
One of the major advantages of a reversal trading strategy is that it offers traders the chance to be part of a new trend right from the start. The first peak in this chart pattern is made when the prices fall back after a trending period in the market. Prices rise again to the same level as the first peak but buyers will not get sufficient momentum to drive prices up through the resistance. Thus, the triple top reversal pattern is only considered complete when the price breaks below the neckline, as it signifies that the bulls’ territory has been breached. The pattern is confirmed when the price breaks below the support level, which is formed by the low points between the peaks.
When you step down to the H4 timeframe, you will notice that a triple top pattern formed against that resistance level, and the price started dropping again. In the EURUSD charts below, you can see a triple top pattern on the D1 chart. When you look at the W1 chart, you will notice that there’s a strong uptrend, and what appeared like a triple top chart pattern on the D1 was just a consolidation on the W1 chart.
How to Implement the Triple Top Pattern with Technical Analysis
No patterns, strategies, or techniques work all the time — this includes the Triple Top pattern. Firstly, you don’t want to chase the market lower because there’s no logical place to set your stop loss. Also, this is where the market is ready to make a pullback or a reversal. If it fails, that’s when a False Break occurs and the market could possibly re-test the lows of Support.
Bonus: How to identify high probability Triple Top chart patterns and profit from the selloff
There are two methods to open a sell order after neckline breakout. In the first method, Trigger sell order just after the breakout of the support line with a big candlestick. In the second method, wait for a pullback after breakout and then open a sell trade.
Price Action Trading- 7 Things to Consider Before Placing a Trade
If you missed the trade when the price broke below the support level, you may still have a chance to enter a trade. Alternatively, you may place your stop loss a few pips above the resistance level. While this may not offer a good reward/risk ratio, your trade is probably safer. You may want to see the MACD line below the signal line and even below the zero level when the price breaks the neckline. When those big boys are done distributing their long positions and taking short positions, they push the price below the neckline, thereby triggering a selling frenzy.
As you can see from the image above, in order for the handle to form, the price of the asset must drop. Once the handle is complete, the price typically surges up, and continues the previous uptrend. This guide will explore the basics of crypto chart patterns, what they are and list some that every trader should know. The triple bottom pattern indicates weakness in the prevailing downtrend that leads to a trend reversal. This makes the triple bottom pattern, much like the name implies, a bottoming pattern and bullish reversal pattern.
WallStreetZen does not bear any responsibility for any losses or damage that may occur as a result of reliance on this data. Jesse has worked in the finance industry for over 15 years, including a tenure as a trader and product manager responsible for a flagship suite of multi-billion-dollar funds. Let’s revisit the gold chart from above to see how this pattern might play out in the real world. Continuing with this example, the price does indeed fall further from $108 to $104. It then begins to oscillate around the former support line before eventually slipping all the way to $101. Whether exiting a long position or entering a short, a triple top is a reliable indicator that can deliver an early warning to inform your next trade.
