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Forex Glossary

Triple Top

A triple top pattern is a bearish chart pattern used in technical analysis. It consists of three consecutive peaks that are approximately equal in price, followed by a breakdown below the support level.

The triple top indicates a potential reversal from an uptrend to a downtrend. The pattern is characterized by three roughly equal highs that are followed by a breakdown below the support. The formation of a triple top is seen as an opportunity to enter a short (sell) position.

Understanding the Triple Top Pattern

The triple top pattern consists of three consecutive peaks that are approximately equal in price. This indicates a loss of buying momentum. It signals a potential shift from an uptrend to a downtrend.

After each peak, the price should create a lower low, suggesting that selling pressure is increasing. The peaks create a resistance level. The dips in price between the peaks are the swing lows. If the price drops below these swing lows after the third peak, the pattern is complete, and traders expect the price to continue falling.

The triple top pattern looks like the head and shoulders pattern, with three peaks in a row. However, unlike the head and shoulders, the middle peak is almost the same height as the other two.

This pattern is also similar to the double top, where the price touches the resistance level twice and then goes down.

What does a Triple Top Indicate?

The triple top pattern shows that the price can’t break through the high points, meaning there aren’t many buyers interested at that price.

When the price goes down, people who bought earlier might sell. If the price doesn’t go up, it’s hard to make money holding it.

As the price falls below the lowest points of the pattern, more people might sell, including those who bought earlier and are losing money, and new traders who want to sell. This is why the price often falls sharply after a triple top.

How to Identify a Triple Top

The triple top pattern is easy to spot out. To identify it, look for the following features:

  1. Three Equal Peaks: The pattern consists of three consecutive peaks that are approximately equal in price. This indicates a loss of buying momentum.
  2. Lower Lows: After each peak, the price should create a lower low, suggesting that selling pressure is increasing.
  3. The Neckline: The neckline is formed by connecting the bottoms of the three peaks.
  4. Breakdown: A price break below the neckline confirms this pattern. This signals a breakdown of support and a potential reversal to a downtrend.

How to Trade with a Triple Top Pattern

Identify the Pattern

Look for three consecutive peaks that are approximately equal in price. After each peak, the price should create a lower low, indicating a potential reversal. The neckline is formed by connecting the bottoms of the three peaks.

Confirm the Breakdown

The pattern is confirmed if the price breaks below the neckline. This signifies that the bears have overcome the resistance. Increased volume during the breakdown is a strong confirmation signal.

If the volume doesn’t go up, the pattern is more likely to fail, and the price might go up or not go down as expected.

Enter the Trade

After confirming the breakdown, enter a short (sell) position at the market price or slightly below the neckline. Place a stop-loss above the highest of the three peaks to limit your potential losses.

Additionally, you can also use other technical tools and chart patterns with the triple top. For example, a trader might watch for the MACD to cross down after the third peak. Traders can also use the RSI to go below the overbought level and confirm that the price will go down.

Conclusion

The triple top pattern is a bearish reversal pattern that signals a potential shift from an uptrend to a downtrend. It is the exact opposite of the triple bottom. It consists of three equal peaks followed by a breakdown below the neckline.

When identified correctly, the triple top can provide valuable trading opportunities for short (sell) positions. However, it’s essential to combine this pattern with other technical analysis tools and consider broader market conditions to make informed trading decisions.

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