The triple top pattern is a crucial one to remember once you've begun to look at the different components of technical analysis. The key aspect of technical analysis is to identify trend reversals. The triple top chart pattern can be used to predict a reversal of asset price movements.
As the name implies, the triple top formation has three peaks and pullbacks between them. All three peaks are located in the same price range. There are also a few retracements. The trendline should be connected to the dips in the retracement. This line can then be extended towards the right. You can use this as a point for entry if the price falls below the trendline. This is only useful if the second dip is slightly greater than the first. If the second retracement dip is higher than the first, or lower, the trendline might be at an angle. This could make it useless.
The triple top pattern is very similar to the head-and-shoulders pattern. Although they may appear similar, there is a major difference. In the head and shoulders, the middle peak is higher than the other peaks to the right and left. The two other peaks are often aligned at the exact same level. A double top is another similar pattern to the triple top. This means that an asset touches a high-priced price twice and then falls between the two peaks.
There are three stages when a triple top is formed:
1. First, the price moves higher until it reaches a resistance level. Then it falls into a support zone.
2. Next, the price attempts to test the resistance level again but fails to do so and returns to support.
3. The third stage is where the price attempts to retest resistance levels but fails, and then falls back.
This is a tug-of-war between sellers and buyers. The sellers try to lower the price while the buyers continue to raise the asset's price. The sellers win the upper hand, and the asset's price drops. This indicates a trend reversal. A bearish trend is indicated by the triple-top chart pattern.
If there is no support break, the triple top pattern will be incomplete. The support level is the lowest point in the triple top formation.
Here are some points to keep in mind when interpreting the triple top chart pattern.
The three tops must occur at the same level but they rarely happen at the exact same level. It can help you assess bullish sentiment by observing the three tops. If the top at the last peak is lower than the first, this indicates that there is significant selling pressure. The market was not pushed to its recent peak by buyers.
What happens if the peak at the top is slightly higher than the highest? This indicates that bulls are still fighting. This could also indicate that the triple top formation is not very reliable.
Traders wait for the market's level of breakout to fall below the line connecting the three bottoms when the triple top formation happens. There are some false signals to be aware of. For example, the market may drop a little below breakout, but then quickly recovers. To avoid false signals, it is important to add some distance from this level.
Some traders enter a short position while others exit long positions when the asset price falls below the support level.
Sometimes, prices can recover even after a triple top has been formed and is completed. A trader might place a stop-loss on short positions if this happens. If the price starts to rise instead of falling, this reduces risk.
A reliable indicator to tell a trader when to sell is the triple top chart pattern. This tells traders that the asset isn't rallying after trying to push prices higher and that it is not finding buyers at that price level.