how a triple top works
the triple top pattern occurs when the price of an asset creates three peaks at nearly the same price level the area of the peaks is resistance the pullbacks between the peaks are called the swing lows after the third peak if the price falls below the swing lows the pattern is considered complete and traders watch for a further move to the downside the three consecutive peaks make the triple top visually similar to the head and shoulders pattern however in this case the middle peak is nearly equal to the other peaks rather than being higher the pattern is also similar to the double top pattern when the price touches the resistance area twice creating a pair of high points before falling triple tops are traded in essentially the same way as head and shoulders patterns say a stock s price peaks at 119 pulls back to 110 rallies to 119 25 pulls back to 111 rallies to 118 then drops below 111 that is a triple top and signals the stock is likely heading lower it would look like the chart below significance of the triple toptechnically a triple top pattern shows us that the price is unable to penetrate the area of the peaks translated into real life events it means that after multiple attempts the asset is unable to find many buyers in that price range as the price falls it puts pressure on all those traders who bought during the pattern to start selling if the price can t rise above resistance there is limited profit potential in holding onto it as the price falls below the swing lows of the pattern selling may escalate as former buyers exit losing long positions and new traders jump into short positions this is the psychology of the pattern and what helps fuel the selloff after the pattern completes no pattern works all the time sometimes a triple top will form and complete leading traders to believe the asset will continue to fall but then the price may then recover and move above the resistance area for protection a trader could place a stop loss on short positions above the latest peak or above a recent swing high within the pattern this move limits the risk of the trade if the price doesn t drop and instead rallies trading triple top patternssome traders will enter into a short position or exit long positions once the price of the asset falls below pattern support the support level of the pattern is the most recent swing low following the second peak or alternatively a trader could connect the swing lows between the peaks with a trendline when the price falls below the trendline the pattern is considered complete and a further decline in price is expected to add confirmation to the pattern traders will watch for heavy volume as the price falls through support volume should pick up showing a strong interest in selling if the volume doesn t increase the pattern is more prone to failure price rallying or not falling as expected the pattern provides a downside target equal to the height of the pattern subtracted from the breakout point this target is an estimate sometimes the price will drop much lower than the target other times it won t reach the target other technical indicators and chart patterns may also be used in conjunction with the triple top for example a trader may watch for a bearish macd crossover following the third peak or for the rsi to drop out of overbought territory to help confirm the price drop real world example of a triple topthe following chart shows an example of a triple top in bruker corp brkr the price reaches near 36 50 on three consecutive attempts the price pulls back between each attempt creating the triple top pattern the stock quickly broke below trendline support at 34 and continued to decline on escalating volume traders could enter short or exit longs when the price drops below support at 34 a stop loss could initially be placed just above the major resistance area the estimated target for the decline is the height of the pattern about 3 25 subtracted from the 34 breakout point therefore the target is 30 75 the target was reached before the price started bouncing although that won t always happen special considerations for a triple topas with double tops and bottoms the risk reward ratio is a drawback of these triple patterns since both the stop loss and target are based on the height of the pattern they are roughly equal patterns in which the potential profit is greater than the risk are preferred by most professional traders by placing the stop loss within the pattern instead of above it triple top or below it triple bottom improves the reward relative to the risk the risk is based on only a portion of the pattern height while the target is based on the full pattern height depending on which entry points are used the trendline or the recent pullback low it is possible to have two profit targets since the height of the pattern can be added to either of these breakout points traders can choose which target breakout level they prefer in order to extract more profit from the 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