Introduction
The Triple Top is a bearish reversal pattern that helps traders in identifying the peak areas of the market. This pattern occurs when the market prints three consecutive tops nearly at the same price level of any underlying asset. The areas of the touchpoints are the resistance levels, and the pullback between these points is known as the swing lows. After the third high or third touchpoint, if the price breaks the support and goes below, the pattern is said to be complete.
Traders can then activate their positions on the sell-side. Most of the traders try to be extra conservative and wait for the exact pattern to occur. But it can be challenging to find the Triple Top Reversal pattern with all the three highs at the same in size. We should always remember that the technical analysis is more of art and less of science. So even if 80% of the pattern rules are met, we can take the trades by confirming those signals with other credible technical indicators.
The Psychology behind the Triple Top Pattern
The appearance of a Triple Top Pattern implies that the buyers are slowly losing momentum in the market. It might also mean that the buyers are not willing to push the price higher. At the same time, the sellers are interested in taking the price lower. The Triple Top pattern is a way more powerful pattern than most of the other credible patterns in the market. This is because the third failed attempt of the buyers implies that the sellers are way too aggressive than the buyers. Hence we can expect stronger downward moves.
Triple Top Pattern – Trading strategy
Step 1: Identifying the TTP on a price chart
In the below AUDCHF Forex chart, we can see the market printing a clear Triple Top chart pattern.
Step 2: Entry
The strategy is to wait for the breakdown to happen so that we can activate our short positions. On the 27th of January, we can observe the breakdown that occurred in this pair, and that can be considered as a clear Sell Signal.
Step 3: Stop-loss & Take Profit
We can activate our sell positions as soon as we see a bearish confirmation candle. We can go for two different targets in this trade. Both are at the higher timeframe’s support area. Most of the traders believe that their target must be double as compared to the size of the Triple Top pattern, but it’s just a myth. Always book the profit according to the market circumstances.
If the trend is super strong, go for the deeper targets. Contrarily, if the market momentum is fading, book the profit at any significant area. Traders who are well versed with pattern trading can add positions when the market goes back to the entry point so that they can ride the whole show again. While trading the breakout or break down patterns, always place the stop-loss near the recent low.
Triple Top Pattern + Double Moving Average
In this strategy, we have paired the Triple Top pattern with the Double Moving Average to identify accurate sell signals. A moving average will help us in identifying significant trends, trading opportunities, and entry/exit levels. Many traders believe that if they find the magic number of the period, then they can easily beat the market, but it’s not true. There are infinite numbers of periods available, and traders should practice only 3 to 4 periods, to use this indicator effectively.
Step 1: Identifying the TTP on a price chart
In the below chart, we can observe the market printing the Triple Top pattern on the NZD/JPY 60-minute Forex pair. We have applied the double MAs on to the price chart.
The traditional way to trade this pattern is to wait for the break down to happen and then go for sell just like we did in the above example. But in this strategy, let’s tweak things a bit by adding the double moving average to the plot. In this strategy, we are using the 14 and 9-period average. This strategy is purely for the intraday traders only.
Step 2: Entry, Stop-loss & Take Profit
After price action printing the third top, if we observe an MA crossover happening, we can activate our sell positions even before the breakdown. By following this approach, we get to enter the trade ahead of time, while the breakdown traders wait for the break down to activate their position. Most of the professional traders use this approach to maximize their profits.
There are many ways to close our positions. We can book profit at a significant support area. The placement of stop-loss depends on the trader’s trading style. If you are an aggressive trader, the smaller stop-loss is good. But expect more hits before the trade performs. If you are a conservative trader, use an extra spacious stop-loss.
Bottom line
A pattern is said to be paramount when it offers the best risk-reward ratio trades. Also, the pattern must have a higher probability of occurring in intraday timeframes. The Triple Top is one such pattern that offers both of these demands to every trader. Also, remember that the Triple Top is a bearish reversal pattern, so only take short positions when you see this pattern on the price charts. Apart from the ones mentioned above, there are different other ways to activate our position in the appearance of this pattern. But the above ones are the safest and most profitable ways to trade.
Try identifying and trading this pattern on a demo account before trading on the live charts. We hope you find this article informative. If you have any questions, please let us know in the comments below. Happy Trading.
