Triple Top Candlestick Pattern Trading Strategy 

The triple top is a bearish candlestick pattern that occurs at the end of an uptrend. As a reversal pattern, the triple top formation suggests a likely change in the trend direction, after the buyers failed to clear the horizontal resistance in three consecutive attempts, the scenario opposite of the triple bottom pattern.  

In this blog post, we look at the structure of the triple top chart pattern and what the market tells us through this formation. We are also sharing tips on the simple triple top trading strategy that will help you make profits. 

What the Pattern Tells Us 

The triple top pattern is quite a straightforward formation. It consists of three consecutive highs/tops recorded at, or near, the same level. For this chart pattern to take place in the first place, the price action has to trade in a clear uptrend.

Given that it requires three peaks to be created, it’s almost impossible to find a perfect triple top pattern where both the horizontal resistance and the neckline are perfectly horizontal. Therefore, allow some space for a neckline to be bent, or one of the peaks printing mostly below or above the horizontal resistance. 

These are the three mandatory elements for the triple top pattern to take place:

• An uptrend - the asset’s price must trade higher in a series of the higher highs and higher lows.
• Horizontal resistance - a trend line connecting three roughly equal highs.
• A neckline - a trend line that connects lows in between three peaks, and whose break signals the activation of the formation.

 

 

The occurrence of the triple top pattern signals a strong uptrend. The bulls must have been in a really positive momentum when one found enough power and strength to test the horizontal resistance three times in a row. In most cases, the price action reverses after the second failure.

Therefore, the triple top pattern is used as a tool to change the trend direction. The buyers had been long in control, making gains in an uptrend. After a period of the bulls’ dominance, which is likely to end after the three failed attempts to clear resistance, the sellers start growing in the game, threatening to reverse a trend of the price action. 

After the third unsuccessful failed attempt to break the resistance, the probability of the neckline break increases. Once it occurs, the triple top pattern is activated. For this reason, the neckline is arguably the most important element of the triple top pattern, as its break activates the pattern and then helps us determine the stop loss and take profit levels. 

Strengths and Weaknesses Due to its design, the triple top pattern is a rare, but a very powerful pattern. The fact that the buyers failed in as many as three successive attempts to break higher makes the reversal extremely powerful. These failures make them feel exhausted and vulnerable, which presents an opportunity to sellers to erase earlier gains of the opposite side. 

The triple top pattern occurs less frequently than the double top, as there is one peak less to happen. It also reduces the chances of a breakout as the buyers are left with no energy after the third failure. 

On the other hand, the fact that it is a rare chart formation is also its biggest weakness. For instance, you would need to spend some time on a chart before you can identify a clean triple top pattern that meets all the required criteria.

Spotting the Triple Top Pattern

Remember, the triple top is a bearish reversal pattern that stems from an uptrend. In the chart below, we have a USD/CAD on a 4H chart moving aggressively higher on the left side of the chart.

The price action then hits a $1.29 horizontal resistance and fails to clear it, causing the first bigger correction since the trend was initiated. The buyers use this correction to regroup and regain confidence and launch another assault at the same level, but again without much success.

What follows are multiple attempts to get to the $1.29 level again, with choppy action recorded in the $1.28s, just before the third peak. After another correction lower, the buyers press the price action once again, trading briefly above $1.2910 and then correcting lower.

 

This example shows how powerful triple tops could prove to be. In addition to multiple attempts to clear this resistance, the third attempt resulted in a bearish candlestick pattern that just invited additional selling pressure. All these failures were simply too much to handle for the bulls, who finally gave up and let the bears erase all previous gains in a quick manner.

 

It is really difficult to wait for the perfect triple top pattern. They are rare, and even when identified, you have to leave some space for certain deficiencies to be present e.g. a bent neckline or unequal highs/peaks.

Trading the Triple Top Pattern

All in all, we take a note of the three mandatory elements of the triple top pattern - an uptrend, three failures, and a break of the neckline that activated the pattern and opened the door for us to get into the market. 

As with every other candlestick pattern, there are two options for an entry: 

1. after the breakout candle closes below the neckline

2. waiting for a retest of the broken neckline.

In this particular example, both options are eventually on the table. For whichever of these two you would have chosen, your entry would have been the same. The stop-loss order is placed above the neckline, allowing some space for a potential retest of the neckline from a downside.

 

The vertical blue measures the distance between the neckline and the horizontal resistance. A simple copy-paste from the point of a breakout gives you a measured take-profit level, which if hit, marks the completion of the triple top pattern. 

As you can see from the chart, the price action first came close to hitting the take profit, but reversed and returned higher for a retest of the neckline. Finally, our profit-taking level has been hit, booking us more than 280 pips. On the other hand, we risked just 30 pips, hence making this setup a perfect trade from the risk-reward perspective.