Triple Top Pattern in Forex is a Bearish reversal Chart Pattern. It appears after a long upward move.
It signals a change in trend direction.
Triple tops behave almost the same way as the double tops only that the triple tops test the resistance line three times instead of two.
What is a triple top pattern in forex
A triple top pattern in forex is a three peak and two bottoms pattern arranged almost at the same level.
It forms after a strong an uptrend price movement.
The prior trend shows that buyers were in control of the market.
When a triple tops appears, it is a strong signal that the selling pressure is higher. This may lead to a trend reversal to the downside.
Formation of Triple Top Pattern in Forex
The first Top forms immediately after a strong uptrend trend.
Price then retraces to the neckline and then rises back attempting to break the resistance level but fails again.
When it falls back to the neckline again, it then forms a the second top. It tries the third attempt to break the resistance level but all in vain and forms the 3rd Top.
Price volume increases again as the pattern completes the formation.
The Triple Tops form three consecutive highs of similar (or almost) height with 2 moderate pull backs in between (neckline).
The pattern is considered complete when price breaks the lows or support line.
As the price breaks the support line , we expect a change in the previous trend.
Confirmation on the triple tops pattern
The support level commonly referred to as the neckline is the trigger line for the confirmation.
Your sell trigger entry-level should be at the break of the neckline in the direction of the reversal breakout.
Draw the neckline by joining the lows of the first top and the second top of the pattern.
Chart with Neckline Breakout
Breakout on the Neckline
The pattern is valid when the price action(third peak) breaks the Neck Line with a bearish candlestick closing below the neckline.
You can also consider a price retest after the breakout for extra confirmation. Then trade the pattern in the direction of the breakout which is the downtrend direction.
You can also consider this confirmation as your exit signal in case you are in a long position.
When a bearish candlestick breaks and closes below the support line, the pattern has confirmed the sell signal.
How to Trade Triple Tops
Steps to trade Triple Tops Pattern in Forex
- First there must be strong uptrend prior to the pattern.
- Identify the triple tops pattern in an uptrend, draw the Neck Line connecting the lows .
- Confirm the validity of the pattern. Wait for the Neckline Breakout on completion of the third top.
- To confirm entry, the price action should close below the Neck Line with a bearish candlesticks.
- Take your trade position. Sell/short the pair
In case you are a conservative trader, wait for a price retest after the price break on the neckline. Take entry on the second breakout confirmation.
Stop loss and Take Profit Levels
Put your stop level slightly above the lower peak of the three peaks in the pattern. If all are on the same level, put your stop level slightly above the peaks or resistance level.
Measure the size of the pattern(height) from the neckline to the highest peak and then apply the same distance to the downside starting from the Neck Line.
This would be your minimum target profit.
Example: Let’s take a look at the AUDNZD, Daily chart below;
From the chart above,
Sell signal was at break & close of bearish candlestick below the neckline (support line).
The Stop loss just above the three peaks/ highs. That is slightly above the resistance level.
The target was got by simply measuring the height of the pattern (H) and projecting that same distance from the neckline downwards.
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