Multiple Tops

AAA

DEFINITION of 'Multiple Tops'

A reversal chart pattern that shows the failure of a security to break through to new highs on a number of occasions, and is therefore a strong sell signal. Multiple tops can be double or triple tops. A multiple top usually develops at the end of an uptrend in a security or index. As the uptrend fades out in the same general area many days or weeks apart, the security falls back on each occasion and establishes a support level, which is the price level at which the bulls shore it up. If it continues to fail to break through the stiff resistance offered by the multiple top region, at some point the bears will succeed in pushing it below the support level. The downside break of this support level would be conclusive evidence of the multiple-top pattern formation.

INVESTOPEDIA EXPLAINS 'Multiple Tops'

Note that multiple tops do not have to be formed at the exact same price. Chartists consider acceptable multiple tops formed at price points as much as 3% apart.

Traders would generally sell short the security on the downside break of the support level. Short selling may be facilitated at this time by the significantly higher trading volume that generally accompanies the downside break. The profit objective of this short sale usually equals the difference between the multiple top region and the support area.
 
For example, if a stock forms a triple top around $15, and has retreated to around $12.50 after each failed attempt at new highs, the short sale would be entered into on a downside break of the $12.50 support level. The profit objective equals the $2.50 difference between the triple top and support level (i.e. $15 - $12.50). This means that the trader would have a price target of $10 on the short sale, for a profit objective of $2.50 ($12.50 - $2.50).
 
Of course, aggressive traders who are particularly bearish on the stock may not wait for the downside break at $12.50 to short it. They may enter into the short sale after the stock has failed to break through $15 for the third time, rather than wait for confirmation of the sell signal on the downside break at $12.50.
 

RELATED TERMS
  1. Technical Analysis of Stocks and ...

    The academic study of historical chart patterns and trends of ...
  2. Double Top And Bottom

    Chart patterns in which the quote for the underlying investment ...
  3. Spinning Top

    A type of candlestick formation where the real body is small ...
  4. Top-Down Analysis

    A method of analysis that involves looking at the "big picture" ...
  5. Technical Analysis

    A method of evaluating securities by analyzing statistics generated ...
  6. Double Top

    A term used in technical analysis to describe the rise of a stock, ...
Related Articles
  1. The Pioneers Of Technical Analysis
    Trading Strategies

    The Pioneers Of Technical Analysis

  2. Trading Double Tops And Double Bottoms
    Forex Education

    Trading Double Tops And Double Bottoms

  3. Technical Analysis Works In Forex Markets
    Forex Education

    Technical Analysis Works In Forex Markets

  4. How To Interpret Technical Analysis ...
    Forex Education

    How To Interpret Technical Analysis ...

Hot Definitions
  1. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  2. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  3. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  4. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  5. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  6. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
Trading Center