15 Price Action Patterns Insiders are Using If a hedge fund managers were using 15 specific price action patterns would you want to know?
Welcome to the thrilling world of trading, where deciphering patterns can unlock the door to profitability. Today, we’re diving into the realm of the triple top chart pattern, a formation revered by traders for its predictive power and elegance.
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Our focus? The Triple Top Chart Pattern trading strategy is a masterpiece of market analysis that offers a window into the psychology of buyers and sellers. This strategy isn’t just an everyday method but a journey through the peaks and valleys of market trends.
So, buckle up and prepare to embark on an enlightening adventure as we unravel the secrets of this formidable chart pattern, a beacon in the tumultuous seas of trading. Let’s decode the market’s messages together and turn insights into action.
Table of Contents
What Is the Triple Top Chart Pattern Trading Strategy?
The Triple Top Chart Pattern trading strategy is a reversal strategy that seeks to take advantage of a simple yet very powerful chart pattern. One of the main benefits of a reversal trading strategy is that it gives you the opportunity to be part of a new trend right from the beginning.
Our team atTrading Strategy Guidesis working hard to develop the most comprehensive guide on different chart pattern strategies. To understand the psychology of a chart pattern, please start here:Chart Pattern Trading Strategy step-by-step guide.
The triple-top patterns can actually take a long time to spread out over time, but it’s about watching the battle between the buyers and sellers.
However, on intraday time frames, the triple top reversal can appear more often, which is the reason why we prefer day trading with the Triple Top Chart Pattern trading strategy.
Now, let’s first start defining what triple-top patterns are and what the psychology behind this money-making chart pattern is. Also, feel free to read thehidden secrets of moving average.
What Are Triple Top Patterns?
According to the textbook definition, the triple top patterns are one of many reversal patterns that visually represent the changing control of the trend.
The structure of a textbook, perfect-looking triple-top reversal is composed of three peaks at nearly or the same price level without the market being able to break through it. Moreover, the third peak or the third reaction of off resistance indicates that selling interest outweighs buying interest, and the trend is reversing.
We need to define a couple of rules about the triple-top pattern:
- Rule 1:To have a reversal, we must have a prior trend in the background to reverse. In the case of the triple top reversal, we’re looking for a bullish trend that has finally got into a swing high area from where we got enough selling activity to stop the bullish trend from going much further.
- Rule 2:The strength of the bullish trend might determine the strength of the sell-off.
Let’s now look into the psychology of these triple-top reversals.
The Psychology Behind Triple Top Patterns
The psychology behind the triple top reversal says that buyers are getting exhausted or they aren’t aggressive enough to push the price higher.
At the same time, the sellers are becoming a bit more aggressive as they are prepared to pay a higher price, and we reach a point of equilibrium between the buying and selling power.
The triple-top pattern is a more powerful reversal pattern because of the third failed attempt to break above the resistance zone. More sellers see that buyers are weak and unable to push the price higher, so they step in more aggressively and, ultimately, manage to lower the price.
Note:The crowd psychology says that the three consecutive failed attempts to break above resistance increase the significance of this level.
Now, let’s see how you can effectively trade with the Triple Top Chart Pattern trading strategy and how to make some profits.
How to Trade Using the Triple Top Pattern Trading Strategy
Triple top patterns occur rarely in the higher time frame, which is why we apply the Triple Top Chart trading strategy mainly on the intraday charts. You can safely use this strategy on the higher time frames, but you’ll need a lot of patience as you’ll have fewer signals.
Step #1: An A++ Triple Top Reversal Is Composed of Three Rounded Tops
You need to identify three rounded tops for the triple-top patterns to be considered tradable. However, what is a rounded top?
In technical analysis, a rounded top is simply a price formation that typically occurs after an uptrend; prices move upward and then quickly roll back downwards, creating a dome or sometimes an inverted “V.”
Depending on the triple top reversal structure, the inverted V top will vary in size and magnitude. Nevertheless, the idea is that we need a quick move up followed by a quick move down to define a rounded top.
To put into practice the Triple Top Chart trading strategy, we have chosen the GBP/USD triple top reversal highlighted in the above figure. We can note that the inverse “V” top is more or less presented in all three peaks.
Note:Don’t seek perfection because, in trading, you need to get rid of your idealistic mindset, as the inverse “V” top will not look perfect all the time, so be flexible.
Step #2: Allow a 10-15 Pips Variation Between the Three Tops
The second criterion of tradable triple top patterns is that you need to allow a 10-15 pips variation between the three tops.
What do we mean by that?
The probability of three tops happening at the same price level is almost impossible. You’ll often find that the three tops have slight variations, but they occur near the same price zone.
What is more important is the closing price, which can align perfectly if the location of the triple-top pattern is good. That’s why we advocate getting rid of your idealistic mindset.
Step #3: Entry 1 at the Third Resistance Retest and Entry 2 at the Support Breakout
Suppose you want to take a bit more risk and be more aggressive. In that case, you can also enter a third resistance test in anticipation that the triple top reversal will hold. What we prefer here to do is to split our risk to gain more and enter half of our position at the third retest and the second half at the support breakout.
From a swing trading perspective, you want to see when the sentiment has changed from bullish to bearish. That indication can only be given by the support breakout of the triple top reversal.
Note:The support level here is formed by the troughs created during the development of the triple-top pattern.
Now, the next logical thing we need to establish for the Triple Top Chart Pattern trading strategy is where to take profits.
Step #4: Take Profit Equals the Same Distance in Price as Measured from the Highest Peak to the Lowest Valley
The minimum average decline after the triple top reversal breakout is approximately equal to the same distance in price as measured from the highest peak to the lowest valley.
If we project the same price distance to the downside, we obtain our first take profit zone for the Triple Top Chart Pattern trading strategy.
The next important thing we need to establish is where to place your protective stop loss.
Step #5: Place the Protective Stop-loss Slightly above the Resistance Created by the Triple Top Patterns
The Triple Top Chart Pattern trading strategy gives you a simple way to quantify risk because you can place your protective stop-loss slightly above the triple top patterns.
Trading triple-top patterns is all about expressing an informed view while being able to cap the risk as much as possible. You don’t want to trade with massive stop-loss, either.
Note:The above was an example of a SELL trade. You can use the same rules but in reverse for a BUY trade. This time, we’re going to use the triple bottom pattern. In the figure below, you can see an actual BUY trade example using triple bottom patterns.
Conclusion
The triple-top patterns don’t happen as often as other chart patterns but have the potential to offer you great profits when they show up. Moreover, the triple top reversal is a very reliable price formation that we recommend to be traded on the intraday time frames because it appears more often.
The significance of the Triple Top Chart Pattern trading strategy is that it gives you the opportunity to enter a new trend right from the start.
If you’re uncomfortable trading reversal patterns, we suggest you try our trend-following system:MACD trend-following strategy.
Thank you for reading!
Please leave a comment below if you have any questions about thisTriple Top Chart Pattern trading strategy!
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15 Price Action Patterns Insiders are Using If a hedge fund managers were using 15 specific price action patterns would you want to know?
