Table of Contents Hide
- What is Triple top pattern?
- How to identify Triple Top chart Pattern?
- What does triple top pattern tell the traders?
- Trading plan for triple top pattern
- Triple Top chart pattern trading strategy
- The Bottom Line
What is Triple top pattern?
The triple top is found in the oldest chart patterns of technical analysis. There are many ways to trade this pattern, but you should always trade it with a confluence to get better results.
How to identify Triple Top chart Pattern?
As the name suggests, there must be three price tops or three price touches at a resistance zone. Three tops can be found if there are two price waves. So, you need to identify two waves on a resistance level. Now follow the following steps to identify a good triple top Pattern
- There must be a bullish trend before three price tops formation at a resistance zone.
- Draw a valid resistance zone by meeting the three price tops or the highs of two swing waves.
- Draw a neckline meeting the lows of two waves.
What is neckline?
A neckline is a line meeting the lows of swing waves that are making a triple top pattern at the resistance level.
There are two types of necklines that you will found on the price chart, and it depends on the market conditions.
- Horizontal neckline
- Inclined neckline
Breakout of neckline
The identification of the triple top pattern is not completed yet until you found a valid neckline breakout. The neckline acts as a strong support line. After the support line breakout, the bullish trend reverses to a bearish trend.
Breakout of neckline must be with a big body candlestick. Big bearish body candlestick represents the momentum of sellers. If a support line breakout happens with huge momentum, then it means that it is a true breakout. Breakout with a Doji candlestick will mostly be a false breakout.
That’s why you should look for a breakout of neckline with a big bearish candlestick.
What does triple top pattern tell the traders?
There is a valid logic behind the reversal in the market trend after Triple top formation. When buyers keep on pushing the market upwards then a time comes when buyer’s force starts becoming weak, and sellers start to push the market down.
Now after a long bullish trend, the price reached a strong resistance level. At this resistance level, buyers will try to break this level to continue buying the price. But the large momentum of sellers at the resistance zone results in failure in breaking the resistance zone. Instead, sellers break the support zone created by buyers and reverse the trend.
During the first failed attempt of buyers to break the resistance zone, the sellers increase in number. In the second failed attempt, more sellers come in to play. In the third attempt, a large number of sellers come in and break the support zone. This causes the trend reversal, and it is called the triple top pattern.
The price must be in overbought condition for this phenomenon or chart pattern to work correctly.
Trading plan for triple top pattern
After the breakout confirmation, the next step is to make a trading plan to sell a currency pair.
Open a sell order
There are two methods to open a sell order after neckline breakout. In the first method, Trigger sell order just after the breakout of the support line with a big candlestick. In the second method, wait for a pullback after breakout and then open a sell trade.
Opening a sell trade after a minor pullback is a better option.
Always place a stop loss above the highest high of three tops formed at the resistance zone.
Take profit level is measured by mirroring the length between high and low of swing waves of the triple top pattern.
Extend the take-profit by multiplying the length of the first take-profit level with a 1.618 Fibonacci number. It will increase the risk-reward ratio.
Always prefer a trade setup with at least 1:2 risk-reward and do not risk more than 2-5% (for a small account) per trade.
Triple Top chart pattern trading strategy
It is the simplest and widely used chart pattern in technical analysis. Due to this reason, there are many false signals based on this pattern that will make you lose in trading. To filter out good trade setups, add confluences to your strategy to increase the winning ratio.
In this Triple top strategy, three confluences have been added
- Bearish candlestick patterns
- RSI indicator to check the overbought conditions
- Higher timeframe trend
- Identify the higher timeframe trend by zooming out the chart and higher TF trend must be bearish
- Analyze the overbought condition by using RSI indicator or using higher high lower low analysis.
- Find out a good triple top pattern
- Neckline breakout must be with a big body candlestick.
- Either open a sell trade just after a valid breakout or wait for the price to give an upward pull back. Here risk reward will help you to choose an option. If risk reward is more than 1:2 then open order instantly after breakout. otherwise wait for price pull back
The Stop-loss level will be at 78% Fibonacci level and take-profit levels will remain the same as discussed in the trading plan section.
The Bottom Line
Chart patterns are widely used by retail traders to analyze the market technically. But in forex trading, you will become a winner only if you are unique from other traders. That’s why to become a unique trader, you need to add confluences to these patterns according to backtest results.
This process will make you become a top-level trader that does not trade every single chart pattern.
No, it is a bearish reversal chart pattern that turns bullish trends into bearish.
It works on every timeframe. But H1, H4, and daily timeframe work best for this chart pattern.