The triple top pattern signals a bearish reversal sentiment and occurs at the end of an uptrend. The triple top is characterized by three peak prices, two pullbacks in between the tops that form a neckline, and a bearish run that breaks through the neckline after the third price peak has formed.
Triple top works by signaling to the trader that the uptrend is about to reverse to a downtrend, and also gives traders the trading signals to capitalize on the market prediction.
Forex traders deploy the triple top chart pattern by identifying it in a chart and opening a short position when the prices break down the neckline. Risk management is applied by calculating the target price and setting it as take-profit while a stop-loss is placed close to the top peak price.
Triple top pattern offers traders advantages like high reliability, clear entry and exit signals, and compatibility with other trading tools to improve accuracy. The risks of trading the triple top pattern are false breakouts, limited occurrence, difficulty in correctly identifying the pattern, slow formation time, and sensitivity to timeframes.
What is a Triple Top Pattern?
The triple top is a chart pattern in technical analysis that comprises three price peaks on the same resistance level, with pullbacks in between, followed by a price decline that breaks the support level. Triple tops are a bearish reversal pattern that signifies a potential end to a bullish run and the beginning of a bear market.
The triple top pattern is formed when the price hits approximately the same level thrice without breaking through it. The triple top pattern structure starts from an uptrend when the price reaches a resistance level and then pulls back, and forms a trough. The asset price rallies up again, retests the resistance level, and forms a second peak. The price pulls back, forms a second trough, then goes up again, forms a third peak, and declines again. The triple top pattern is completed when the declining price breaks through the troughs support level (neckline) created by the falling prices.
The triple top pattern means that after several attempts, buyers are unable to take control of the financial market. Buyers pushed the prices to the first top but were unable to sustain it, hence the fall to the first trough or support level. Buyers push again and reach a second top, but not strong enough to sustain it, prices fall again. Buyers made a third attempt to push the asset prices higher but were not able to break the resistance level. Prices begin to fall, more sellers jump into the market, and buyers are forced to exit their long positions. Falling prices break through established support levels and confirm the triple top pattern.
The major attributes of the triple top pattern are the occurrence in a sustained uptrend, three price peaks, and necklines are approximately the same resistance and support levels, respectively. The buying pressure weakens with each price peak and the selling pressure increases after the last price peak. The triple top pattern is confirmed when the falling prices break through the neckline.
The triple top pattern is a bearish reversal pattern meaning that its formation on the charts indicates that the price direction is about to reverse from bullish to bearish. Reversal is a basic Forex terminology that implies a change in the price direction of a currency pair or a financial asset. The price target of the triple top is the estimated level that the trader predicts the price to reach after the reversal. The price level is calculated from the height of the pattern, which is the difference between the highest peak and the neckline.
What is the history of Triple Top Pattern?
The triple top pattern was first discussed by ‘Richard W. Schabacker’ in his book titled “Technical Analysis and Stock Market Profits” in 1932. Triple top patterns were popularized in 1948 by Robert D. Edwards and John Magee, in their book titled ‘Technical Analysis of Stock Trends’. The triple top was derived from earlier works done by Charles Dow (1851-1902).
The triple top pattern has its roots in the late 1800s from the works of Charles Dow, the first editor of ‘the Wall Street Journal’ and the co-founder of ‘Dow Jones and Company.’ Charles Dow believed that market trends are very important and could help traders predict future price movements. The works of Charles Dow laid the foundation for future studies and developments of price patterns in the financial markets, although Charles Dow did not identify the triple top.
Richard W. Schabacker discussed triple top, double top, head and shoulders, triangles, and several charting patterns in his book ‘Technical Analysis and Stock Market Profits’ written in 1932. The triple top was described as an extension of the double top but with a third top, which indicates a stronger resistance before the reversal.
The classic 1948 book, “Technical Analysis of Stock Trends” categorized the triple top pattern as a major reversal pattern that is formed after an extended uptrend. The award-winning bestseller has sold over 1 million copies and has been translated into various languages, thereby making the triple top popular. The eleventh edition of the book was published in 2018. The triple top became more popular and easier to identify on historical charts with the advent of electronic trading and broker platforms.
How does the Triple Top Pattern work?
The triple top pattern works as a bearish reversal pattern that forms three tops almost at the same price levels, without breaking the resistance before declining steadily until it breaks the support. Triple top patterns occur at the end of an uptrend and it signals a weak buying pressure and an increased selling pressure.
The triple top pattern stems from an uptrend with a weakening buying pressure. The price forms the first peak and pulls back to a support level. Buyers rally again, and another peak is formed with a second pullback to support. The third peak is formed as the buying pressure wanes, which forces a further price decline.
The rules for identifying the triple pattern are that it must be in an uptrend, three peak prices must be spotted at approximately equal price levels, two support price pullbacks must be clear, and the price must break through the support.
Traders interpret triple top as an indication that prices are going to reverse from uptrend to downtrend. The triple top breakout pattern is confirmed when the prices break through the neckline or support level created by the two pullback prices of the pattern.
What is the Target of Triple Top Pattern?
The target of the triple top pattern is the price level at which the triple top is projected to attain after the breakout. The target price is calculated by estimating the distance of the resistance from the support and projecting it downwards from the breakout point. The target of a triple top pattern in technical analysis is typically derived using a measurement of the resistance level, support level, and breakout point. Subtract the support price level from the resistance level price and project it downwards from the breakout point.
The formula to calculate the target price of the triple top chart pattern is written below.
Target price = Breakout point – (Resistance level – Support level).
(where Resistance level = price at the 3 tops, support level = price at the troughs)
Traders use the target price to calculate the stop-loss price level and the take-profit level according to their risk/reward ratio. The target price is not always achieved because the market conditions are constantly changing, but it serves as a guide to the trader.
Is Volume significant to Triple Top formation?
Yes, volume is significant to the formation of the triple top pattern. Volume decreases with each peak formation, indicating that buyers are losing momentum. Volume is critical in the formation of the breakout below the support level, indicating that sellers have taken control of the market.
The volume of trades placed by buyers and sellers is what forms the triple top and every chart pattern. The volume of bulls or buyers in the market wanes after forming the first peak and continues to decline as the remaining two peaks are formed. The volume of sellers increasing with each pullback from the tops indicates strengthening selling pressure. A confirmation of a valid triple top climaxes in a strong selling pressure that breaks through the support level.
A false breakout is likely to occur if the breakout at the support occurs at a low volume. Weak selling volume will not sustain the downward movement after the breakout, which might lead to potential losses on the part of the traders. Volume analysis clearly showing a shift in market sentiments is very important in establishing the validity and profitability of the triple top pattern.
Is the Triple Top Pattern a common Chart Pattern?
No, the triple top pattern is not common when compared to other chart patterns. Triple top patterns are rare because of the formation rules that guide their identification. A study revealed that it occurs in 6.5% out of all chart patterns.
The triple chart pattern seldom occurs in price charts because it must occur in an uptrend, show three distinct top prices, pull back twice to the support levels, and then break down below the support level. The complex identification rules leave the triple top with a formation of 5-10% of all chart patterns.
Thomas Bulkowski, an American leading authority in chart patterns, discovered that triple top occurs in 6.5% of all types of chart patterns across the financial markets. The average decline in prices after a triple top breakout is 20-30%, which means that the prices mostly reverse after the breakout occurs. Traders need to combine the triple top pattern with other trading tools or indicators to increase its reliability.
How to use a Triple Top trading pattern in Forex Trading?
Below are the steps to use the triple top trading pattern in Forex trading.
- Identify the Triple Top Pattern on the Chart. Recognizing the triple top pattern involves spotting three consecutive peaks at a similar price level on the Forex chart. The triple top pattern typically forms after an extended uptrend, indicating that the upward momentum is weakening. Observing equal highs with intervening lows suggests that the market is struggling to break through a resistance level, which is a key characteristic of the triple top pattern.
- Confirm the Pattern with Technical Indicators. Verifying the validity of the triple top pattern requires the use of technical indicators such as volume and oscillators. A decline in volume with each successive peak strengthens the case for a bearish reversal implied by the triple top pattern. Additionally, indicators like the Relative Strength Index (RSI) can show bearish divergence, and confirm the potential effectiveness of trading the triple top pattern.
- Set an Entry Point Below the Support Level. Placing an entry order just below the support or neckline formed by the lows between the peaks is a common strategy when trading the triple top pattern. The breakdown below the support level signals that sellers are gaining control, making it an opportune moment to enter a short position.
- Determine Stop-Loss Levels to Manage Risk. Implementing a stop-loss order above the recent highs helps manage potential losses when trading the triple top pattern. Setting the stop-loss slightly above the third peak provides a safety net in case the market reverses and invalidates the triple top pattern.
- Set Profit Targets Based on Price Projection. Calculating a profit target involves measuring the distance from the support level to the peaks of the triple top pattern and projecting that distance downward. This measurement provides an estimated price move used to set realistic profit targets. Traders optimize their risk-to-reward ratio by aligning the profit target with the expected move derived from the triple top pattern.
- Monitor the Trade and Adjust as Necessary. Continuously observing the trade allows for timely adjustments in response to market changes when trading the triple top pattern. Traders reevaluate the position if the price action shows signs of reversal or fails to continue downward momentum.
How to Identify the Triple Top Chart Pattern?
The triple top chart pattern is identified from an uptrend with three peak prices that are roughly at the same price level, and two troughs forming a neckline of support. The prices fall below the neckline after the third peak price, which confirms and completes the pattern.
The triple top pattern must be identified in an extended uptrend, this is the first rule in identifying the triple top chart pattern. The three peak prices must be approximately at the same price level, the tops are joined to form the resistance level. The price pullbacks in between the first two tops must be at similar price levels, they are joined to form the support level or neckline.
Volume is important in correctly identifying the triple tops pattern. Check if the volume is reducing as each peak forms but spikes as the price breaks through the support line. The triple top pattern is confirmed if the falling prices break through the support line with high selling pressure.
Is a Triple Top Pattern Bullish or Bearish?
The triple top pattern is bearish because it indicates that the uptrend is coming to an end and a downtrend is about to begin. Triple top patterns indicate a strong resistance, weak buying pressure, and a growing selling pressure, which facilitates the reversal to a bear market.
Triple top forms a pattern on the charts that signals to traders that a bearish reversal is imminent. A triple top forms in an uptrend, the first peak is formed when the buying pressure reduces and sellers cause a pullback. The resistance level is tested 3 times without a breakthrough. The selling pressure mounts as more sellers add momentum and volume to the market, which breaks through the support and confirms the bearish pattern.
Is Identifying Triple Top with Forex Broker Platform easier?
Yes, it is easier to identify the triple top pattern on a broker platform. Modern broker trading platforms come with advanced charting packages, multiple trading tools, and indicators, which make it easier and more efficient to identify and trade the triple top pattern.
The technical analysis and drawing tools that come with the top Forex broker platforms make it easy to identify and trade the triple top pattern. Broker platforms are compatible with automated pattern recognition tools and plugins that detect chart patterns, which include the triple top. Price alerts and custom indicator alerts notify traders when preset market conditions are met. For instance, a trader may set an alert to be notified when the market price tests a specified resistance level thrice. Modern platform tools facilitate the identification process of the triple top pattern.
Traders identify the triple top pattern manually by looking at the charts on the broker platforms. The trader opens multiple charts, switches between timeframes, zooms charts, views historical charts, and works with various indicators which aids the triple top identification process.
When do Forex Traders use the Triple Top Pattern?
Forex traders use the triple top pattern after an extended uptrend and the forecast shows that a reversal is near. A triple-top pattern is used when prices are near a key resistance level and the buying momentum is weakening. Indicators like RSI, MACD, and other trading tools are used with triple top patterns.
Forex traders anticipate the formation of triple top pattern and its trading opportunities when a prolonged bullish trend is losing momentum. Forex traders use trading tools and indicators to confirm their signals before opening positions, embodying the meaning of Forex trader. For instance, if the Relative Strength Index (RSI) shows a bearish divergence when the triple top peak prices are forming, it confirms a weakening buying pressure. A bearish divergence occurs when the RSI is declining while market prices are going higher.
Forex traders watch out for triple top in Forex patterns when prices approach historical or psychological key resistance levels. Key resistance levels are known by analysts as very strong price levels that have acted as barriers in the past and are difficult to break. For instance, historically, the key resistance levels for EUR/USD have been 1.2000 or 1.5000, GBP/USD is 1.3500, and AUD/USD is 0.8000.
Triple top works in other financial markets apart from the Forex market. For instance, triple top in stock patterns, crypto, or futures market can be identified and traded using the same principles, provided the market conditions are right.
What is the effectiveness of the Triple Top in Trading?
The success rate of the triple top pattern ranges from 70-80%, according to studies by different traders, analysts, and stakeholders. The effectiveness of the triple top pattern depends on several factors, such as timeframes, market conditions, confirmation signals, and the trader’s skills and experience.
The triple top pattern is very effective in trading the financial markets when properly applied in the right market conditions. The market conditions that increase the effectiveness of the triple top chart pattern are a strong prior uptrend, decreasing volume at successive peaks, overbought market conditions, and a decisive break below support after the third top. A strong prior uptrend provides the necessary background for a reversal pattern to be meaningful. Decreasing volume at each peak indicates waning buying pressure and weakening bullish momentum. Overbought market conditions suggest that the asset is due for a correction, making a reversal more likely. A decisive break below the support level after the third top confirms the pattern and signals a potential shift to bearish sentiment. The triple top becomes effective when these market conditions are right and the pattern’s metrics are properly identified.
The effectiveness of the triple top is tied to the trader’s skills, experience, and other trading tools. Correctly identifying the triple top pattern, performing volume analysis, knowing exactly when to open and close a trade, and using good risk management strategies are essential to determining the effectiveness and maximizing the potential of the triple top pattern.
What is the success rate of Triple Top Pattern? According to the technical analysis expert, Thomas Bulkowski, his study in 2005 revealed that the triple top pattern has a success rate of 73%. TradingView states that the triple top pattern has a success rate of 77.59%. Research by ‘Technical Analysis of Stocks & Commodities’ Magazine in 2016 states that “Triple top pattern has a 79% success rate in predicting downward trends.” The conclusion from the research and the published results is that triple top pattern has a high success rate in trading the financial markets.
Is the Triple Top Pattern the Strongest Bearish Pattern?
No, the triple top pattern is not the strongest bearish pattern when compared to other bearish patterns. The triple top is one of the strongest chart patterns because it consistently depicts failure to break a key resistance level and indicates an impending reversal from bullish to bearish markets. The head and shoulders pattern is regarded as a stronger bearish pattern.
The triple top pattern is a strong bearish reversal pattern because it clearly defines price peaks, profit targets, entry and exit points, and stop-loss levels. Triple top works on multiple timeframes and can be integrated with trading tools and indicators to improve its efficiency. ‘Head and shoulders’ and the ‘Double top’ are other strong bearish patterns that are comparable with the triple top.
Head and shoulders pattern is similar to the triple top because it has 3 tops with lows in between, but the difference is that the middle peak price (head) is the highest while the two other peaks (shoulders) are approximately at the same level. Head and shoulders pattern is considered stronger than triple tops because the head (peak price) is between two shoulders, which indicates a gradual shift from bullish to bearish momentum. Studies put the success rate of the head and shoulders pattern at 75-83%, while the triple top’s success rate is 70-80%.
Double top is a chart pattern that is similar to triple top except that double top has only two price peaks, which makes its formation faster. Triple top is slow in formation and is prone to false breakouts, but Double top is stronger in markets with rapid reversals. The accuracy and efficiency of both patterns are similar, but the triple top is more reliable because of its extra peak price. The success rate of double top is 65-70%.
What is the accuracy of the Triple Top Pattern?
The accuracy of the triple top pattern is 70-80%, according to reports and studies from industry experts. The accuracy of the triple top pattern depends on the market conditions, timeframe, volume analysis, and the trading skills, experience, and strategies of the trader.
Babypips, a Forex website, studies in 2019 revealed that the overall accuracy of the triple tops pattern is 63.2%, with an average decline of 18.5%. FXCM, a Forex brokerage, studied the triple top pattern in 2018 and put its accuracy at 57.1% and the average decline at 15.6%. Thomas Bulkowski stated that triple top has an accuracy of 73% and an average decline of 21.4%. The triple top pattern produces accurate results when properly identified and combined with other trading tools.
The accuracy of triple top pattern is enhanced if volume analysis is conducted while the pattern is forming on the charts. High volume after the formation of the third top indicates strong selling pressure, which will likely break the support and continue the bearish run.
The triple top pattern works in all timeframes but is more accurate in longer timeframes such as weekly or monthly charts. Short timeframes like 5-minutes (M5) or 15 minutes (M15) make the triple top form quickly and more vulnerable to false signals, thereby reducing its accuracy.
Custom trading tools and indicators enhance the accuracy of the triple top pattern if incorporated into the trading strategies.
Is Triple Top Pattern Reliable?
Yes, the triple top pattern is a reliable chart pattern used in trading Forex, crypto, stocks, and other financial markets, but it is not foolproof. The reliability of the triple top pattern to indicate a bearish reversal is about 70-80%, provided that the timeframe, market conditions, confirmation levels, and trading strategies are all excellent.
The triple top pattern is more reliable when it forms in an uptrend with a clear structure of 3 peaks, two supports, breakout below the neckline, and precise volume dynamics, which shows decreasing volume while forming peaks and increasing volume on breakdown. Confirmation with other tools and waiting for the price to break the neckline support contribute to the reliability of the triple top.
The reliability of the triple top pattern grossly depends on the trader’s ability to correctly identify the pattern in the right market condition and apply the appropriate trading and risk management strategies. A trader’s ability to enter and exit the trade at the right time is critical to the success and reliability of the triple top pattern.
What happens when Triple Top fails?
When the triple top pattern fails, the price does not break through the neckline support line as expected; it reverses into an uptrend. The stop-price triggers and closes the trade with a loss if the price surges and breaks through the resistance level or price peaks after a triple top pattern failure.
Strong uptrends, fundamental news, and insufficient volume at the breakdown are some of the factors that cause the failure of the triple top pattern. A bullish breakout will result if the triple top failure is caused by market conditions, especially news-driven events. Traders lose money because the market has gone against their predicted direction.
When a triple top pattern fails, it means that the trader is forced to take action. Some traders immediately exit their short positions and open a long position, while others wait for the stop-loss to trigger. The exit of many traders from their short positions due to the failed triple top pattern fuels the bullish run in the market. More buyers in the market means increased buying pressure and possibly breaks the resistance formed by the triple top prices.
How often does Triple Top Pattern occur?
The triple top pattern occurs at a frequency of 1-3% in the Forex markets, 2-4% in the stock markets, 3-5% in the futures market, and 5-10% in the crypto markets. The triple top pattern is a less common pattern when compared to other reversal chart patterns.
The frequency of occurrence of the triple top pattern in the financial markets varies depending on the market conditions, timeframe, data quality, and the financial market. Triple top occurs in trending and high-volatility markets, but the frequency of false signals is high.
The frequency of occurrence of triple top patterns in long-term charts like weekly and monthly charts is 4-6%, while triple top in 1-minute to 1-hour charts is 1-2%. The triple top occurrence in crypto markets is 5-10%, which is higher than other financial markets because of high volatility.
Are Triple Top Chart Patterns rare?
Yes, triple top chart patterns are rare when compared to similar bearish reversal patterns such as head and shoulders patterns and double top patterns. The complex formation process, market dynamics, and dependency on frequency are the reasons why triple top patterns are rare.
The triple top pattern requires a strong resistance level that will be tested thrice without breaking through and a price decline from the third peak down till it breaks the support level. Triple top pattern formation is rare because the price fluctuations are complex and are very difficult to form perfectly.
The market dynamics of the financial markets are unstable. Prices often reverse before forming 3 tops, the price levels of the peak prices often vary greatly, or the pullbacks will not form at a similar price level.
Triple top patterns are more reliable when they are spotted in long-term timeframes like weekly or monthly charts, which means that the pattern occurs rarely, only a few times a year. Triple tops pattern occurs on short-term timeframes but frequently leads to false signals.
What are the Benefits of Triple Top Patterns in Forex Trading?
The benefits of triple top patterns in Forex trading are listed below.
- High reliability: The triple top pattern is a proven highly reliable pattern that indicates an impending bearish reversal.
- Defined entry and exit points: The neckline formed by the troughs or pullbacks form a clear entry signal while the resistance formed by the three tops serves as the stop-loss level. Profit targets are estimated from the difference between resistance and support levels.
- Multi timeframe application: Triple tops can be applied on the daily, weekly, and monthly chart which means that it supports multiple trading strategies and trading styles.
- Combination with other tools: Triple top pattern works well with other trading tools, strategies, and technical indicators.
- Risk management: Triple top helps with risk management by providing signals that are used in estimating the stop-loss level, take-profit level, and risk/reward ratio.
- Multi-market application: Forex, stocks, crypto, and other financial market traders can incorporate triple top patterns in their strategies.
What are the Risks of the Triple Top in Forex trading?
The risks of Forex trading with the Triple top pattern are listed below.
- False breakouts: Triple tops often lead to false breakouts, even after forming the 3 tops and breaking the neckline.
- Pattern misidentification: Triple top pattern formation requires multiple steps which are easily mistaken or misidentified.
- Timeframe sensitivity: The triple top pattern does not fit into all strategies because it is timeframe-sensitive. Triple top’s reliability increases with higher timeframes.
- Limited occurrence: Triple top is a rare pattern and cannot be the only strategy known to a trader. Mastering how to identify and trade the triple top pattern is insufficient because the trader must learn other strategies and tools to be able to trade regularly.
- Incomplete formation: Triple top pattern formations often fail. For instance, after forming the tops, the prices start ranging or fail to break the support, leaving traders with emotions like anxiety, confusion, anger and uncertainty.
Is Trading with Triple Top better compared to Triple Bottom Pattern?
No, trading with the triple top pattern is not better than trading with the triple bottom pattern because both patterns are opposite and cannot be used in the same market conditions. The triple top is a bearish reversal pattern while the triple bottom is a bullish reversal pattern.
The triple top pattern forms in an uptrend and signals an impending downtrend reversal, while the triple bottom forms in a downtrend and signals a reversal to an uptrend. The triple top forms 3 peak prices at a resistance, and 2 pullbacks at a support line which it breaks after the third top. The triple bottom is exactly the opposite, forming 3 bottoms at a support, and 2 pull-ups at a resistance, which the price breaks when it reverses to an uptrend after forming the third bottom price.
Triple bottom occurs more frequently in charts, especially middle-term timeframes, while triple top is more reliable in long-term timeframes but gives frequent false signals on shorter timeframes. The triple bottom has a lower success rate, which is 50-60%, while the triple top has a 70-80% success rate.
The application of triple top or triple bottom pattern depends on the trading strategy and the market conditions. Similar but opposite characteristics are exhibited by both triple top and triple bottom patterns, but none is better when compared to the other.
What is the difference between Triple Top and Double Top Pattern?
The difference between triple top and double top patterns is that triple top has three peak prices at approximately equal resistance levels while double top pattern has two peak prices. The triple top is less common because of longer formation time but is generally more reliable than the double top.
Triple top and double top are both bearish reversal patterns that signal the end of an uptrend and the beginning of a potential downtrend. Confirmation of both patterns is similar; the declining prices must break through the neckline after the last peak price has formed. Both the double top and triple top become more reliable when their signals are validated with other trading tools, such as indicators like RSI or MACD.
The triple top is different from the double top because the resistance level is tested 3 times, while the double top resistance level is tested twice. The third peak price of the triple top confirms a strong resistance, which makes the triple top pattern more accurate and more reliable than the double top. 60-75% is the success rate of the double top, while the triple top is 70-80%.
The double top pattern is more common than the triple top due to its simpler formation process. Double top’s higher frequency of occurrence translates to more trading opportunities for traders. Identification of the double top pattern is easier than that of the triple top, which makes double top friendly to beginners.