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What is a Triple Top Pattern?
As the name suggests, a triple top is a bearish technical analysis chart pattern that occurs after an uptrend and tests the high three times before starting a bearish move down. Once the price reaches the third peak and falls below the neckline, the asset price is expected to continue falling and a trend reversal occurs. Just like other reversal chart patterns, the triple top pattern is used to predict the end of the previous trend and help traders find good entry levels. In terms of its structure and characteristics, the triple top chart pattern is made up of the first, second, and third peaks at the same level and the neckline which acts as a support level. This is similar to the double top pattern and the head and shoulder pattern.
What Aspects Form a Triple Top Pattern?
A triple top is a trend reversal pattern that shows buying weakness and failure to absorb selling pressure, resulting in a sell-off. This chart pattern shows three distinct peaks, called resistance, within a price zone that the stock price has failed to conquer. When the price gradually begins to show weakness, and eventually breaks through the lower reversal level, called support, the asset is said to have experienced a triple top breakdown.The Importance of Knowing the Triple Top Pattern
The pattern shows that price action is unable to break above the upper top. They will appear after several failed attempts to trade the stock high. It cannot find buyers at the upper end of the range. Technical traders will understand that price is limited to gains above the resistance level and have no business holding the stock. So Investors who were holding the bottom start selling new traders jump in and short the stock pushing the price down below the lower trendline. So the stock breaks the sell-off that triggered it.
Candlestick Pattern: Complete Explanation, Single, Dual, to Triple
How to Trade with Triple Top Pattern
The important fact to note is that the triple-bottom pattern can only be identified when the price moves to the support for the second term. Before that, it is a bit difficult to say whether it is really a triple bottom pattern.
Watch for false breakouts
The thing to note is that false breakouts are usually popular when trading double-top and triple top patterns. False Breakouts usually occur when price forms a bullish breakout and then returns to the channel.Check the volume
Next, it is always important to look at the volume trend of the asset you are trading. Volume is an important part of price action trading. One way to trade a triple bottom is to identify when it forms and then simply wait for price to move above the upper resistance level. A good example of a triple bottom is on the dollar index chart below. Unlike what we said above, this pattern formed during a period when the index was previously rising. So, it is possible to spot the pattern during an uptrend. In this case, buyers would place a buy trade slightly above the upper resistance at $99.34.
Place a buy/sell stop
Another way is to set a buy-stop trade slightly above the resistance level. In this case, the buy-stop trade will be executed if the thesis is validated. Similarly, you can place a sell-stop trade below the bottom of the triple-bottom. This trade will be executed if the bullish pattern display is invalidated. Some traders also trade the channel that appears before the bullish trade appears. In this case, one will go short when it hits resistance and buy when it moves to support.
Double Bottom Pattern: Characteristics, Terms, How to Read, and Examples
What is Double Top Pattern?
The double top pattern requires two highs in the market that signal an impending bearish reversal. A measured price decline will occur between the two highs, indicating some resistance at the highs. After retracing some of the first high, the market rallies back to the first high, but the strength in the market wanes and is unable to sustain a break above the first high. Slowing momentum can be evidenced by lagging peaks on an oscillator such as the RSI. While not required, the market may break above the first high, albeit briefly. A slight and temporary break above the first high is preferable as it can excite bulls only to reverse and trend lower. Signs of a bullish shift in IG client sentiment may indicate a secondary top is looming. The neckline forms between the lows of the valley between the two highs. A break below this neckline would confirm the double top pattern. Bearish confirmation is determined by a break through the key price support level (neckline) which is located at the low between the ‘highs’.
Similarly, the double bottom pattern counters the double top pattern signaling a bullish reversal. Instead of the confirmation being shown on a breakout of a major support level, the double bottom occurs at a major resistance high between two lows. Double top and bottom patterns are powerful technical tools used by traders in major financial markets including forex.
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Double Bottom Pattern: Characteristics, Terms, How to Read, and Examples |
How to Read Double Top Pattern
A Double Top is a bearish technical analysis reversal pattern that forms after an asset tests two consecutive peaks followed by a break below the support line. In most cases, you will be able to identify a double top formation by looking for the letter “M” on a trading chart. So, let’s see what a double top pattern actually looks like on a trading chart. On the AUD/USD daily chart below, we can see a clear M shape – two peaks and a neckline. And, after the currency pair broke through the neckline support level, the trend reversal was confirmed with price moving lower.
With the above in mind, below is a step-by-step process to help you identify and use the double top pattern in forex trading:
- Find the first top retest and draw resistance lines at the first and second top price levels.
- Try to identify the first and second peaks and draw a neckline around these levels.
- Wait for the first candle to complete after the price breaks below the neckline.
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Enter a short-selling position with a tight stop-loss order at or below the neckline.
How to Trade with Double Top Pattern
The formation of the second top is the inflection point for the double top pattern. There are two possibilities after the formation of the second top. If the bulls are able to regain control and do not allow the price to fall below the support level, the double top pattern will not form. However, if the bears dominate and the price falls below the support level, which is the level touched during the low between the two peaks, the double top pattern is confirmed. This is an extreme reversal signal and one should ideally short the security. When taking action based on the double top formation, it is important to consider several factors.
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A broader trend
The double top formation is a bearish reversal trend. It is effective only if it forms after a broader bullish trend. The bullish trend before the double top formation must be long, at least three months. Double top patterns after short rallies should be avoided.
Height
Double top formations should have different heights and depths. Although there are no well-defined parameters for the height or depth of a double top pattern, a 10% difference is desirable. Double top patterns with deeper lows are considered stronger reversal signals. But deeper patterns may take longer to form.
Width
Peaks can be easily identified only if the time difference between the peak formations, also known as width, is wide enough. While the difference between two peaks can be months or years, there should be a difference of at least one month.Volume
Trading volume is one of the strongest signals that confirms the formation of the pattern. The volume of the second top is usually lower than the first top. If the volume of the second peak is higher or equal to the first peak, the reversal may not hold and the rally may continue. To be able to apply this triple top pattern, you need to understand the other patterns as well. So that later you do not misunderstand each pattern, you need to read other patterns through the GIC Journal. You can later apply these patterns to each strategy in the trading that is done.
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