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When three attempts to break through an established level of resistance have failed, the buyers generally become exhausted, the sellers take over and price falls, resulting in a trend change. Yes, there are many real-world examples of traders successfully capitalizing on the triple-top pattern. But after the third test failed, gold broke support around Rs. 1250, completing the pattern. Astute traders like Paul Tudor Jones executed short positions on the breakdown for large gains as gold declined over Rs. 200 in the following months.

Do Triple Tops Work?

1. You determine that if the price of gold drops below the support line (red dotted line) after having reached the third top, the price will likely fall even further.
2. Still, when zoomed out at one year in length, most traders would agree that the price pattern of the gold example forms a clear triple top, despite its bumpy trajectory.
3. The profit target can be set near the level of the troughs or lower if the asset begins collapsing rapidly after the breakdown.
4. This distinctive three-peak shape signals that upside momentum may be waning as resistance from sellers strengthens.

The triple top is a type of chart pattern used in technical analysis to predict the reversal in the movement of an asset’s price. Consisting of three peaks, a triple top signals that the asset may no longer be rallying, and that lower prices may be on the way. As soon as the 3rd top or peak formed, price reversed lower and broke below the previous two swing lows, completing the pattern.

Shorting the third peak

The triple top pattern is identified on a chart when an asset hits the same resistance level three times without being able to break above it. Typically, the asset will rise towards the resistance level, retreat, and then rise back triple top chart pattern up to test the level again twice more. Each peak reaches the same resistance zone before selling pressure pushes the price lower. Its implications are especially noteworthy when the triple top appears after a prolonged uptrend or at key technical analysis levels like all-time highs or round numbers, which act as mental barriers. Traders use the pattern to time entries for short positions, place stop-losses, and identify price objectives.

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The price rises towards but fails to eclipse the previous high peak, forming the second peak at a similar level. You’ll notice that the pattern took a while to form, so if you waited, you could miss a lot of trade entries. The triple top formation caused a cup and handle failure, which became a falling wedge. The bearish harami pattern was the warning sign, which turned into an evening star pattern to confirm the reversal.

You’ll often find that the three tops have slight variations, but they occur near the same price zone. You have discovered the most extensive library of trading content on the internet. Our aim is to provide the best educational content to traders of all stages. Now, this also means that the market psychology of the pattern is slightly different. On the other hand, if the last top is slightly higher than the two previous peaks, this is telling us that bulls still were in for the fight.

Other times you’ll see how a market produces a false breakout following the three tops, and then just continues to go sideways in the trading range for a long time. Having covered the psychology behind a triple top, we thought that it might be good to have a look at how you can go about to trade the pattern. There are a lot of things you need to be aware of, especially when it comes to avoiding false breakouts that may hurt your trading performance significantly.