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.
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What Are Triple Top 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 third peak forms, it cannot 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.
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 is what makes the formation different.
The middle peak is equal to the left and right peaks instead of being higher than the two.
The triple top pattern is also similar to the double top pattern. The difference is that the triple top does not have the bearish volume so the bulls can come in once more to try and break the highs.
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; establishing resistance.
Highs do not have to be exact but should be pretty close. Otherwise, it could turn into a different pattern. The three tops establish an important resistance level. Traders pay close attention to these levels. If a stock makes three equal highs and not break, it is a good idea not to try and go long.
Volume
Volume is always important when trading. It is what drives price. When the triple top pattern is forming, volume usually decreases.
Volume can increase when the stock is trading at the highs. Lower volume during the peaks indicates 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 reinforcing the soundness of the pattern.
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 are not compete until support is broken; 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 another good short position.
Triple Tops can be found on every time frame from intraday to months. Often time it will take a few months to form and are great reversal patterns to use while swing trading. The inability to break the resistance level can allow for an opportunity to short while looking to trade the bearish options strategies.
