Triple top patterns are a bearish pattern. It consists of three peaks or resistance levels. After the first peak level is formed, price goes down either quickly or gradually. After that, price moves back up to the first peak level and it fails that first resistance level, thus creating a double top. After the failure and pullback, price moves back up to the first and second resistance level and fails, thus creating triple top. Look for price to stay below the resistance levels to confirm bearish continuation. Watch our video on how to identify and trade triple top patterns.
What Is a Triple Top Pattern & How to Identify These Patterns?
A triple top pattern consists of several candlesticks that form three peaks or resistance levels that are either equal or near equal height. Typically when the 3rd peak forms, it can’t break above the first two peaks and causes a triple top failure.
These patterns are bearish reversal patterns found on stock charts. Triple tops signal a reversal at the end of a long term uptrend. Watch our video above to learn more about how to trade them.The triple top pattern shows the tug of war between the bulls and the bears. The tug of war causes three highs that can’t sustain causing a trend reversal.
The constant fighting between the bulls and bears form many important patterns which form support and resistance. This is nothing new. Even 17th century Japanese rice trading was affected, hence where we get our Japanese candlesticks patterns.
These patterns formed by bullish candlesticks, bearish candlesticks and doji candlesticks give us a look at what traders around the world are feeling. When we know how others view certain stocks, we know how to trade them.
Basics of Triple Top Patterns
Triple top patterns are similar looking to head and shoulders patterns. While they look similar, the peaks are more equal on a triple top which makes the formation different.
The middle peak is equal to the left and right peaks instead of being higher than the 2.
The triple top pattern is also similar to the double top pattern. The difference is that the triple top doesn’t have the bearish volume so the bulls can come in once more to try and break the highs.
Many patterns can form together which is why it’s so important to be able to see patterns within patterns. A bearish pattern can be forming inside a bullish pattern.
Knowing what candlesticks mean can give you warnings of which pattern will win. Hence why it’s important to understand candlesticks and their meanings. We teach how to trade candlesticks in our trading rooms. Check out our trading service to learn more.
Technicals of Triple Top Patterns
Triple top patterns have three highs, hence the name triple top. Each high should be pretty equal, have good space and mark clear turning points. This establishes resistance.
The highs don’t have to be exact but should be pretty close. Otherwise it could turn into a different pattern. Although, the meaning can be the same.
The three tops establish a pretty important resistance level. Traders pay close attention to these levels. If you see a stock make 3 equal highs and not break, it’s a good idea not to try and go long (bookmark our stock watchlists page which we update daily).
Volume is always important when trading. It’s what drives price. When the triple top pattern is forming, volume usually decreases.
Volume can increase when the stock is trading at the highs. But low volume during the peaks indicated the bulls are losing momentum. Bears gain the upper hand at the the end of the third peak.
After the third high the volume really increases as the sellers/shorts come in and drive price back down. That increase in volume drives price right through support. This really reinforces the soundness of the pattern. Read our post on what does volume mean in stocks to learn more about the importance of volume in trading.
How to Trade Triple Top Patterns
- How to trade triple top patterns:
- Watch for rise of 1st peak
- Next, watch for price to pullback either quickly or slowly
- Then, watch for price action to rise again to the previous peak area
- Next, watch for price to pullback either quickly or slowly rejecting at 1st peak
- Watch for price to rise again to previous two peak levels
- Traders take a short once price breaks the neckline of top three peaks
- Place stop at top of highest peak
- Some traders take a short position once 3rd peak rejects at 2nd peak
- Place stop at top of highest peak
Support Turned Resistance
As with all other reversal patterns, triple top patterns aren’t compete until support is broken. The lowest point of the pattern is considered support.
Once this level is broken, the downtrend has begun and support is now resistance. Traders may test that resistance level to see how strong it is. This can allow for anther good short position.
Trend lines are also an important part of finding support and resistance. They can be used to draw these levels at an angle as well as map out the trend.
When price breaks that trend line, not only do you see the reversal of the trend but also the new resistance. Take our candlesticks patterns course.
3 top patterns take a few months to form and are great reversal patterns to use while using swing trading techniques. The inability to break the resistance level can allow you to short as well as trade put options.
Read our post about trading options for a living to delve deeper into options trading.
Studying the chart patterns as well as practicing them is the best way to become comfortable with the tools of trading. No matter how much you think you know, never stop studying. Take our free stock online courses.