Triple Top Pattern

What is the Triple Top Pattern? 

It is a pattern that appears on the price chart as three consecutive peaks after a sustained uptrend, where the price hits the same resistance level three times and fails to break above it on each occasion. 

This repeated failure indicates that the Bulls (buyers) are losing strength and the Bears (sellers) are starting to dominate. Thus, a potential reversal from an uptrend to a downtrend becomes imminent. 

Pattern Confirmation 

The pattern consists of three peaks and two close troughs, which together form the ”Neckline.” 

The three peaks’ heights must be similar, and the Neckline must be roughly horizontal to confirm the pattern’s validity. 

The Sell Signal 

When the price breaks below the Neckline and closes beneath it, this signals that the Bears have overtaken the Bulls and the downward reversal has begun. 

Stages of the Triple Top Pattern Formation 

• The pattern formation stage must be preceded by a clear and sustained upward trend. 

• The First Peak begins to form, driven by the confidence of the Bulls (buyers), as the price hits a resistance level and rebounds slightly with the emergence of selling pressure. This resistance may be a previous high, a key Fibonacci or Moving Average level, or a price zone where the asset has reversed several times before. 

• The price attempts to rise again, forming the Second Peak, but fails once again to break the same previous high. Here, trading volume begins to decline, indicating growing uncertainty among the Bulls. 

• In a final attempt, the Bulls push the price to break the same resistance level, forming the Third Peak. The breakout fails, confirming the fading bullish momentum. 

• After three failed breakout attempts, the price returns to the support area (the Neckline). If the price breaks below the Neckline, the pattern’s signal is confirmed, and the bearish reversal is declared to begin. 

To Calculate a Potential Downward Price Target: 

Measure the vertical distance between the Resistance (the height of the peaks) and the Support (the Neckline). 

Subtract this distance from the Neckline (the support). 

Example: 

Price at Resistance “Three Peaks”: $200 

Support Line “Neckline” is located at: $180 

The vertical distance between support and resistance is between $200 and $180 = $20 

Subtracting this distance from the support line: $180 – $20 = $160 

The target price is $160. 

How Does the Triple Top Pattern Affect Market Psychology and Behavior? 

• The appearance of the bearish signal increasingly triggers stop-loss orders for the Bulls (buyers). Conversely, the Bears (sellers) rush to open short-selling positions. This collective behavior accelerates the downward move and the rate of price decline. 

• A shift in market sentiment occurs, where the resistance (the three peaks) turns into a psychological ceiling. This means the Bulls (buyers) become more skeptical about the price’s ability to break the resistance line and prefer to avoid risk. 

• The pattern’s signal is confirmed if the major indices “the market as a whole” witness a simultaneous decline, or if bad news or weak financial results emerge for the traded asset. 

Importance of the Triple Top Pattern in Technical Analysis 

• When this pattern appears on a chart, it provides an early warning signal of a trend reversal, indicating a shift in market sentiment and supply/demand dynamics. This gives traders opportunities to change their strategies, adjust their targets, or take profits before a downward reversal begins. 

• The pattern’s importance increases when it appears after a prolonged uptrend or at important technical levels, such as an All-Time Highs or Round Numbers (like 100 and 500), which constitute a barrier or psychological pressure for traders who unconsciously set stop-loss orders and profit targets based on them. 

• The pattern helps identify trading points, such as determining entry points for short-selling positions, placing stop-loss orders, and identifying expected downward price targets. 

How to Trade the Triple Top Pattern 

• When the pattern is confirmed, an opportunity becomes available to open a short position. When do you enter?When the price breaks the support line (the Neckline) to the downside. 

• Where do you place the stop-loss order? To manage risk, place the stop-loss order above the Neckline (or slightly above to avoid premature exit). If the price rebounds above the Neckline, the stop-loss order will be automatically triggered to limit potential losses. 

• As for taking profits, we previously mentioned how to calculate the target price. There is another method for setting a profit target based on the nearest support level, this may limit profits if the support level is too close. Therefore, you can use Trailing Stops to lock in potential profits as the price continues to fall. 

Risks to Consider When Trading the Triple Top Pattern 

• A false breakout below the support line (Neckline) may occur briefly, followed by a quick bounce back above the line, resulting in losing trades. 

• Early entry into short-selling positions before confirmation of the breakout carries higher risks than waiting for confirmation. Avoid speculation and be patient until the pattern is confirmed. 

• The resistance level “The Three Peaks” may be broken upwards. In this case, the pattern is invalidated, requiring a quick exit from losing positions. 

• Some indicators may give a delayed signal of a trend reversal, leading to delayed trading orders and missed opportunities. 

• The Triple Top pattern is most suitable in a market with a clear trend (usually upward). In markets lacking a clear trend and moving within a narrow range between support and resistance, the Triple Top may form repeatedly without a true breakout, leading to false signals and frequent stop-loss triggers. (Be sure to look for the pattern in strong uptrends.) 

• The pattern can be difficult to pinpoint accurately, and its interpretation varies from trader to trader. Not every formation of three minor peaks confirms the pattern. Ensure it forms within an uptrend and combine it with other technical indicators to confirm the reversal. 

Triple Top Pattern vs. Triple Bottom Pattern 

The Triple Bottom Pattern is the exact opposite of the Triple Top Pattern and signals a potential reversal from a downtrend to an uptrend. 

• While the Triple Top forms at the peak of a strong uptrend, the Triple Bottom forms at the trough of a strong downtrend. 

• The Triple Top consists of three peaks that fail to break resistance, while the Triple Bottom consists of three troughs that fail to break support. 

• The Triple Top signifies that the Bulls (buyers) have lost control and the sellers will soon dominate. The Triple Bottom signifies that the Bears (sellers) have lost control and the Bulls (buyers) have started to dominate. 

• The Triple Top reflects a loss of confidence and buyer exhaustion, while the Triple Bottom reflects improved market sentiment and buyers seeking an opportunity. 

• The Triple Top tells you to take a defensive stance and anticipate a decline (open a short position), while the Triple Bottom tells you to take an aggressive stance and anticipate a rise (open a long position). 

Triple Top Pattern vs. Double Top Pattern 

Both patterns indicate a bearish reversal and appear after an uptrend, but the difference lies in their strength and reliability: 

• While the Triple Top consists of three peaks that form slowly, the third peak reinforces the resistance level and indicates stronger selling pressure, thereby confirming the pattern’s signal and making it more reliable for a reversal. 

• In contrast, the Double Top consists of two peaks that form more rapidly, providing faster signals. Due to this, they are more prone to false signals as they offer less certainty about the resistance and are therefore less reliable. 

In nutshell 

No pattern is perfect, guaranteeing you a 100% profit. The Triple Top pattern, like any trading tool, carries risks if used alone. 

Always be sure to confirm any pattern you adopt with other technical analysis tools to reduce risk and increase your chances of profit. 

Remember: In trading, don’t try to predict what will happen, the markets will always surprise you! and don’t let emotions control your decisions. Try starting with a demo account to avoid risking real money. And don’t hesitate to consult a financial expert who can guide you toward wise and well-informed trading decisions. 

You can visit the Naqdi platform to learn about the educational and analytical methods available from a licensed, trusted, and leading broker in the trading world.