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Accurate trading depends on spotting reliable reversal signals before the crowd. Triple Top reversal pattern is one of the most trusted bearish signals in technical analysis, flagging a possible shift in market trend after a prolonged rally. In this guide, you’ll learn waht is a Triple Top Chart Pattern, how Triple Top pattern works and how to trade this pattern but first lets understand exactly what is a Triple Top chart pattern.
You’ll also learn how to differentiate it from false signals and apply effective trading strategies in real market.
What is Triple Top Chart Pattern?
Triple top chart pattern is a bearish reversal signal that forms after an uptrend when price repeatedly tests a resistance zone three times and retreats twice. Each successive peak shows buyers attempting to push prices higher but their diminishing strength suggests demand is weakening. The pattern completes once price breaks below the horizontal support line drawn through the two intervening lows, ideally on increased volume, confirming selling pressure.
On a price chart, you’ll see three roughly equal peaks (the tops) separated by two pullbacks (the troughs). Traders draw a resistance line across the tops and a support line across the troughs. When the price closes below the support line and you see a clear jump in trading volume, it confirms the triple-top setup and usually means further downward movement is likely.
How Does Triple Top Candle Pattern Work?
Here’s how it forms step by step:
- First Peak: The price rises and forms a high as buyers dominate. It meets resistance, and selling begins, leading to a pullback.
- First Trough: Price drops from the first peak and finds support, forming a temporary bottom.
- Second Peak: The price rebounds and climbs to a level close to the first peak. Buyers fail to push it higher and sellers react again.
- Second Trough: Price falls once more, stopping near the level of the first trough. This horizontal support line between the two troughs is called neckline.
- Third Peak: A final push by buyers brings the price back up, testing resistance for the third time. It again fails to break out, confirming buyer exhaustion.
- Breakdown: The pattern is confirmed when the price breaks below the neckline with higher volume signaling a trend reversal and suggesting the start of a bearish move.
The Triple Top pattern shows that sellers have gained control after repeated failed attempts by buyers. Traders often watch for a neckline breakdown with strong volume to confirm the signal.
How to Trade Triple Top Pattern
Here are a few steps involved in trading Triple Top pattern:
- Wait for Breakdown Confirmation
Enter a short trade only after the price breaks below the support level (the base of the pattern). This confirms the completion of the Triple Top formation.
- Wait for Breakdown Confirmation
Place your stop loss just above the resistance line formed by the three peaks. This helps manage risk if the price moves against your position.
- Calculate Profit Target
- Measure the height of the pattern (distance between resistance and support).
- Use this height to guess the target by going the same distance down from where the price breaks.
- Check Volume for Confirmation
Ensure the breakdown is supported by high trading volume. A low volume drop may signal a false breakout.
- Resistance Level: Three peaks create a strong resistance zone. Price struggles to move past this level and repeated failure suggests weakening bullish momentum.
- Neckline Support: Horizontal level connecting the lows between the peaks acts as support. A break below this neckline confirms the pattern and signals a trend reversal.
- Volume Analysis: A rise in volume during the breakdown from the neckline adds strength to the bearish confirmation. Weak volume may indicate a false breakout.
- Target Estimation: Measure the vertical distance from the resistance (peaks) to the neckline. Use this height to guess the target by going the same distance down from where the price breaks.
- Timeframe Relevance: The pattern can appear on intraday, daily or weekly charts. Patterns on higher timeframes
Triple Top chart pattern is not confirmed until the neckline is broken. Until then, the market may still move sideways or even resume the uptrend. Traders usually wait for confirmation and volume support before taking a position.
Triple Top Pattern Advantages and Disadvantages
Here are merits and demerits of this pattern:
| Advantages | Disadvantages |
|---|---|
|
Gives an early signal that buying pressure is weakening and a trend reversal might happen. |
Sometimes, the price breaks support briefly and then bounces back, causing false signals.
|
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Offers a clear entry point near support with a stop loss above the peaks, giving good risk reward. |
If the price breaks above resistance, the pattern fails and may lead to losses. |
|
Has a high success rate after the support breaks, which can help increase profits. |
Works best in trending markets. In sideways markets, it often gives false or failed signals.
|
|
Helps traders follow a clear plan and avoid random trades, improving win chances. |
Should be used along with other indicators for more reliable signals. |
|
Volume helps confirm the pattern, lower volume at peaks and higher volume on breakdown is ideal. |
Entering too early, like on the second top, may lead to wrong trades if the pattern doesn’t confirm.
|
Final words
Triple Top pattern signals a possible trend reversal from up to down. It forms when the price fails to cross the same resistance level three times and then breaks below support. Spotting this pattern, waiting for confirmation with volume and using proper risk management can help traders take advantage of bearish moves. But remember, no pattern works all the time, it’s best to use it along with other indicators and a solid trading plan.
Frequently Asked Questions
What is the meaning of Triple Top pattern?
It’s a bearish reversal pattern that forms when the price fails to break above the same resistance level three times, followed by a drop below the neckline.
What is the psychology behind Triple Top pattern?
It reflects weakening buyer strength. Each failed attempt to break resistance shows that bulls are losing control and a break below support confirms bearish pressure.
Is Triple Top pattern bullish in nature?
No, it’s a bearish pattern that signals a possible reversal from an uptrend to a downtrend.
How reliable is the Triple Top as a reversal signal?
It is fairly reliable when confirmed by a neckline break with strong volume, especially on higher timeframes.
Can traders rely on Triple Top patterns?
Yes, but only after confirmation and when combined with other indicators and proper risk management.
How can I trade a Triple Top pattern?
Wait for the price to break below the neckline with volume, then enter a short position. Place a stop loss above the peaks and set a target based on the pattern height.
What is the time horizon of Triple Top chart?
It can form on intraday, daily or weekly charts. Patterns on longer timeframes usually offer more reliable signals.
Happy investing and thank you for reading!
Disclaimer:
This website content is only for educational purposes, not investment advice. Before making any investment, it’s important to do your own research and be fully informed. Investing in the stock market includes risks, and you should carefully read the Risk Disclosure documents before proceeding. Please remember that past performance doesn’t guarantee future results, and due to market fluctuations, your investment goals may not always be achieved.
