The Triple Top pattern, and how to use it
The triple top pattern is a bearish chart pattern that is formed by three distinct peaks, with the price rising to a resistance level and then falling back down each time. This pattern is created when the price of an asset rises to a resistance level, falls back down, and then rises again to the same resistance level two more times before eventually breaking through the support level and falling. The triple top pattern is a reversal pattern, which means that it is typically seen as a bearish sign and indicates that the asset’s price is likely to reverse its upward trend and start falling.
To form a triple top pattern, the asset’s price will typically rise to a resistance level, fall back down, and then rise again to the same resistance level two more times before breaking through the support level and falling. The pattern is typically completed when the price breaks through the support level, which is a trendline that connects the lows between the three peaks.
One of the key characteristics of the triple top pattern is that the trading volume tends to increase as the pattern progresses. This is because the price is making a significant move and there is more activity from traders. However, once the price does break through the support level, trading volume may decrease as the price starts to fall and traders become less active.
In order to trade the triple top pattern, traders should look for the following characteristics:
- Three distinct peaks: This is the key feature of the triple top pattern, as the asset’s price rises to a resistance level, falls back down, and then rises again to the same resistance level two more times before breaking through the support level and falling.
- A support level: This is a trendline that connects the lows between the three peaks.
- Increasing trading volume: As the pattern progresses and the price approaches the support level, trading volume should increase.
- A breakdown: Once the price breaks through the support level, traders should enter into short positions and expect the price to continue falling.
It is important to note that the triple top pattern is a bearish pattern, but it is not a guarantee that the asset’s price will fall. As with any trading strategy, it is important to use risk management techniques and to always be aware of the potential for losses.
One way to trade the triple top pattern is to set a sell order just below the support level, as this is where the price is likely to break through and start falling. Traders can also set a stop loss order just above the highest of the three peaks, in case the price does not break through the support and instead rises back up.
Another way to trade the triple top pattern is to wait for confirmation that the price has indeed broken through the support level before entering into a short position. This can be done by looking for additional bearish signals, such as a bearish crossover on a moving average or a bearish candlestick pattern.
It is important to keep in mind that the triple top pattern can take some time to form, as the price needs to rise to the resistance level, fall back down, and then rise again to the same resistance level two more times before breaking through the support level and falling. Traders should be patient and wait for the pattern to complete before entering into a trade.
