What is a 'Triple Top'

The triple top pattern is a type of chart pattern used in technical analysis to predict the reversal of a long-term uptrend. The pattern occurs when the price of a security creates three peaks at nearly the same price level. The bounce off the resistance near the third peak is a clear indication that buying interest is becoming exhausted, which leads many traders to predict that a long-term reversal is about to occur.

BREAKING DOWN 'Triple Top'

The three consecutive tops make this pattern visually similar to the head and shoulders pattern, but in this case the middle peak is nearly equal to the other peaks rather than being higher. The pattern is also very similar to the double top pattern, whereby the security only rises to re-test its prior highs one time before breaking down. The key difference between the double top and triple top is that the double top pattern doesn't have enough bearish volume following the second peak, which leaves room for bulls to make another attempt to breakout to new highs.

Here's an example of a triple top pattern:

Example of triple top chart pattern.

In the above example, the price reaches about $36.50 three consecutive times without breaking out, forming a triple top chart pattern. The stock quickly broke down below key support levels at $34.00 to a low of around $30.00 before rebounding. 

Trading Triple Top Patterns

Many traders will enter into a short position once the price of the asset falls below the identified support level, which is often created by connecting the reaction lows during the time that the pattern forms. For example, the support level in the chart above would have been around $34.00. A short position entered at that price and exited at $31.00 would have generated an 8% profit in just a few sessions. Traders may also place a stop-loss for the short sales just above the three peaks in case the stock was to quickly reverse direction.

Traders will also look for low volume during the three peaks - suggesting that bulls have little momentum - and heavy volume during the final breakdown as bears pick up momentum. These trends are also apparent in the chart above where there's little bullish volume and significant bearish volume leading up to February 12 when the stock began to rebound. Other technical indicators and chart patterns may also be used in conjunction with the triple top to provide confirmation of a bearish trend lower.

RELATED TERMS
  1. Double Top

    A double top is a chart pattern, characterized by two consecutive ...
  2. Rising Bottom

    Rising bottom is a pattern on a security's chart, considered ...
  3. Confirmation On A Chart

    Confirmation on a chart is the term used to describe a chart ...
  4. Gartley Pattern

    The Gartley pattern is a complex chart pattern, based on Fibonacci ...
  5. Rounding Bottom

    A rounding bottom is a chart pattern used in technical analysis ...
  6. Three Black Crows

    Three black crows is a bearish candlestick pattern that is used ...
Related Articles
  1. Trading

    Advanced Candlestick Patterns

    Learn how to identify and trade the island reversal, kicker, hook reversal and three gap advanced candlestick patterns.
  2. Trading

    Stock Chart Patterns to Keep an Eye On

    Some of these stocks are exhibiting big chart patterns, so a breakout is likely to be significant.
  3. Trading

    Analyzing Chart Patterns

    Learn how to evaluate a stock with a few easy-to-identify chart patterns.
  4. Trading

    Inverse Head and Shoulders Patterns Breaking Out

    Watch for higher prices if these stocks complete inverse head and shoulders patterns (a bottoming pattern).
  5. Trading

    Most Commonly Used Forex Chart Patterns

    Greatly improve your forex trading by learning these commonly used forex chart patterns that provide entries, stops and profit targets.
  6. Trading

    Continuation Patterns: An Introduction

    Learn the most common varieties of continuation patterns and how they work in market analysis.
  7. Trading

    3 Charts That Commodity Traders Will Want to Watch

    Despite recent periods of consolidation on the charts of most commodities, active traders will maintain a bullish bias due to nearby support levels.
RELATED FAQS
  1. What are the differences between a bar chart and candle sticks?

    Explore the difference between bar and candlestick charts. Learn how technical analysts use charts in the analysis of supply ... Read Answer >>
  2. What Does It Mean When There Is 'Price Action'?

    Price action refers to the day-to-day fluctuation in the price of an asset. Read Answer >>
  3. Is the banking sector subject to any seasonal trends?

    Explore the unexpected seasonal trends that can be discerned regarding the banking industry and the financial services sector ... Read Answer >>
  4. Why is trading volume important to investors?

    Learn about trading volume, its importance and how investors analyze volume to confirm a trend or reversal in a security. Read Answer >>
Trading Center