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The Triple Top pattern is a type of technical analysis that is used to try and predict possible market reversals.
What is the Triple Top pattern?
Consisting of three tops or peaks, the Triple Top identifies downward momentum of the price and surface in an uptrend.
The formation of the Triple Top happens when the price creates three peaks at an equal level. These peaks form resistance levels, and the low points between these peaks are the swing lows. After the appearance of the third peak, the Triple Top pattern completes.
For example, assume the price of EUR/USD makes its first peak at $1.1845, then the price drops to $1.1842, then hurries its way up to 1.1845, drops back again to $1.1841, then jumps again to $1.1847, before finally falling to $1.1843. This is how the Triple Top pattern works in a nutshell.
The three peaks that compromise the Triple Top pattern kind of looks like the head and shoulders pattern. The difference occurs because of the middle peak. The peaks in the Triple Top are equal in size. The pattern also resembles the Double Top pattern. The only difference is the presence of the third peak.
How to use the Triple Top pattern?
Traders can take both buy and sell positions when trading the Triple Top pattern. As mentioned earlier, the price makes three tops and three lows before finally forming the Triple Top.
Usually, traders take sell positions after the neckline is drawn between the three lows. This neckline forms a support level, confirming declining prices. Traders may then enter the trade with the third peak as a stop-loss. Traders can also take buy positions after the first two lows. As the price rallies its way up, there is a buying opportunity for traders.
To confirm the accuracy of the Triple Top pattern, traders could look for the volume. If there is a high increase in the volume, it could be an indication that the price is further going to decline. However, when the trading volume is lower than expected, traders may not take sell positions, as the price can bounce back at any time.
As with double tops and bottoms, the risk/reward ratio is one of the Triple Top pattern’s major drawbacks. The stop-loss and profit target is sometime based on the length of the pattern that should be equal. Traders may choose to place the stop-loss and profit-targets above or below the Triple Top pattern. It depends on the individual trader and their overall trading strategy,
Depending on the chosen entry points, the Triple Top can provide two profit-targets because the peaks are troughs forming the pattern are equal. Traders can then decide which profit-target they have to take.
Triple Top pattern trading strategy
The Triple Top can take a significant amount of time to fully emerge. Therefore, traders may need to locate the pattern on longer timeframes.
The pattern is considered bearish, but traders can take long positions also.
Triple Top pattern buy strategy
- Locate the pattern in an uptrend.
- Wait for the price bar to go bullish before entering.
- Enter the trade after the appearance of any one of two lows.
- Place a stop-loss near the recent swing low from the entry point.
- Exit the trade when the next peak occurs.
Triple Top pattern sell strategy
- Locate the pattern in an uptrend.
- Wait for the price bar to go bearish before entering.
- Enter the trade after drawing the neckline between the three lows.
- Place a stop-loss at or near the third peak.
- Exit the trade on low.
Triple Top pattern conclusion
The Triple Top Pattern can be used on your trading platform charts to help filter potential trading signals as part of an overall trading strategy. Although the pattern is hard to find, the Triple Top is a potential identifier of a bearish reversal. Traders can also use other forms of technical analysis to confirm trading signals.
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