Triple Top/Bottom strategies

Triple Top/Bottom Strategies: A Beginner's Guide

Triple Tops and Bottoms are reversal patterns in technical analysis that signal a potential change in the direction of a trend. They are considered strong indicators, especially when confirmed by volume and other technical indicators. This article provides a comprehensive guide to understanding and utilizing triple top and bottom strategies, geared towards beginner traders.

Understanding the Patterns

Both triple top and triple bottom patterns are visual representations of price action attempting to break through a resistance or support level, failing each time, and ultimately reversing direction. The key difference lies in whether they occur at the top or bottom of a trend.

Triple Top

A triple top pattern forms after an uptrend. It's characterized by the price making three successive attempts to break through a specific resistance level, but failing each time. These attempts create three roughly equal highs, resembling a 'M' shape on the chart.

Uptrend Preceding the Pattern: A clear uptrend must precede the formation of a triple top. This establishes the bullish momentum that the pattern will eventually reverse.
Resistance Level: The key component is a strong resistance level. This is a price point where selling pressure consistently overcomes buying pressure.
Three Failed Breakouts: The price attempts to surpass the resistance level three times. Each attempt is followed by a decline. The highs don’t need to be *exactly* the same, but should be close enough to be considered roughly equal.
Neckline: The neckline is a support level formed by connecting the lows between the first and second top, and the second and third top. A break below the neckline confirms the pattern.
Volume: Ideally, volume should decrease with each failed breakout attempt at the resistance level. This indicates weakening buying pressure. Volume typically increases on the break of the neckline.

Triple Bottom

A triple bottom pattern forms after a downtrend, and is the inverse of a triple top. It’s characterized by the price making three successive attempts to break through a specific support level, but failing each time. These attempts create three roughly equal lows, resembling a 'W' shape on the chart.

Downtrend Preceding the Pattern: A clear downtrend must precede the formation of a triple bottom. This establishes the bearish momentum that the pattern will eventually reverse.
Support Level: The key component is a strong support level. This is a price point where buying pressure consistently overcomes selling pressure.
Three Failed Breakdowns: The price attempts to break below the support level three times. Each attempt is followed by a bounce. The lows don’t need to be *exactly* the same, but should be close enough to be considered roughly equal.
Neckline: The neckline is a resistance level formed by connecting the highs between the first and second bottom, and the second and third bottom. A break above the neckline confirms the pattern.
Volume: Ideally, volume should decrease with each failed breakdown attempt at the support level. This indicates weakening selling pressure. Volume typically increases on the break of the neckline.

Identifying Triple Top/Bottom Patterns

Identifying these patterns requires careful observation of price charts. Here's a step-by-step approach:

1. Identify the Trend: Determine whether the market is in an uptrend or a downtrend. This is crucial for recognizing the appropriate pattern. Tools like moving averages can help determine the trend. 2. Locate Potential Resistance/Support: Look for areas where the price has repeatedly stalled or reversed. These are potential resistance (for triple tops) or support (for triple bottoms) levels. Pivot points can be useful here. 3. Observe Price Action: Watch for the formation of three roughly equal highs (triple top) or lows (triple bottom) around the identified level. 4. Draw the Neckline: Connect the relevant lows (triple top) or highs (triple bottom) to form the neckline. 5. Analyze Volume: Assess the volume during the formation of the pattern. Decreasing volume during the failed breakout/breakdown attempts is a positive sign. 6. Confirm the Break: Wait for a confirmed break of the neckline with increased volume. This is the signal to act.

Trading Strategies for Triple Tops

The following strategies can be employed when a triple top pattern is identified:

1. Short Entry on Neckline Break

Entry Point: Enter a short position (sell) when the price decisively breaks below the neckline. A decisive break means the price closes below the neckline convincingly, preferably with a significant increase in volume.
Stop-Loss: Place a stop-loss order slightly above the highest high of the triple top. This protects your position in case the pattern fails and the price continues upwards.
Target Price: A common target is to project the distance between the neckline and the highest top downwards from the neckline break. (Neckline – Highest Top = Target Price). Fibonacci retracements can also be used to find potential target levels.

2. Conservative Short Entry on Pullback

Entry Point: After the neckline is broken, wait for a pullback (a small rally) to the broken neckline, which now acts as resistance. Enter a short position when the price is rejected from the neckline.
Stop-Loss: Place a stop-loss order slightly above the neckline.
Target Price: Same as above – project the distance between the neckline and the highest top downwards from the entry point.

3. Using Indicators for Confirmation

RSI (Relative Strength Index): Look for bearish divergence between the price and the RSI. This means the price is making higher highs, but the RSI is making lower highs, suggesting weakening bullish momentum. RSI is a momentum indicator.
MACD (Moving Average Convergence Divergence): Look for a bearish crossover of the MACD lines, confirming the downtrend. MACD is a trend-following momentum indicator.
Volume Weighted Average Price (VWAP): Observe if price consistently fails to close above the VWAP, indicating strong selling interest.

Trading Strategies for Triple Bottoms

The following strategies can be employed when a triple bottom pattern is identified:

1. Long Entry on Neckline Break

Entry Point: Enter a long position (buy) when the price decisively breaks above the neckline. Again, a decisive break is a close above the neckline with increased volume.
Stop-Loss: Place a stop-loss order slightly below the lowest low of the triple bottom.
Target Price: Project the distance between the neckline and the lowest bottom upwards from the neckline break. (Lowest Bottom – Neckline = Target Price). Elliott Wave Theory can also assist in identifying potential target areas.

2. Conservative Long Entry on Pullback

Entry Point: After the neckline is broken, wait for a pullback to the broken neckline, which now acts as support. Enter a long position when the price bounces off the neckline.
Stop-Loss: Place a stop-loss order slightly below the neckline.
Target Price: Same as above – project the distance between the neckline and the lowest bottom upwards from the entry point.

3. Using Indicators for Confirmation

RSI: Look for bullish divergence between the price and the RSI. This means the price is making lower lows, but the RSI is making higher lows, suggesting weakening bearish momentum.
MACD: Look for a bullish crossover of the MACD lines, confirming the uptrend.
On Balance Volume (OBV): A rising OBV during the formation of the pattern suggests increasing buying pressure. OBV is a volume-based technical indicator.

Risk Management Considerations

False Breakouts: Triple top and bottom patterns can sometimes result in false breakouts. This is why confirmation with volume and other indicators is crucial.
Stop-Loss Orders: Always use stop-loss orders to limit your potential losses.
Position Sizing: Never risk more than a small percentage of your trading capital on any single trade (typically 1-2%). Money Management is critical for long-term success.
News Events: Be aware of upcoming news events that could impact the market and invalidate the pattern. Economic Calendar is a valuable resource.
Market Volatility: Adjust your stop-loss and target prices based on the current market volatility. ATR (Average True Range) can help you assess volatility.

Common Mistakes to Avoid

Trading Without Confirmation: Don't enter a trade until the neckline is decisively broken with increased volume.
Ignoring Volume: Volume is a critical component of these patterns. Pay attention to it!
Setting Stop-Losses Too Close: Give the trade enough room to breathe. A stop-loss that is too close to your entry point will likely be triggered by normal price fluctuations.
Chasing the Pattern: Don't force a pattern that isn't there. Be patient and wait for clear signals.
Ignoring the Overall Trend: Triple top/bottom patterns are more reliable when they occur against the prevailing trend.

Advanced Considerations

Multiple Time Frame Analysis: Analyze the pattern on multiple timeframes to get a more comprehensive view. For example, identify a potential triple top on a daily chart and then confirm it with a break on a 4-hour chart.
Pattern Variations: The patterns don’t always look textbook perfect. Be flexible and learn to recognize variations.
Combining with Other Patterns: Look for confluence with other technical patterns, such as head and shoulders, double tops/bottoms, or flags and pennants.

Resources for Further Learning

Investopedia: [1]
BabyPips: [2]
TradingView: [3]
School of Pipsology: [4]
FXStreet: [5]
DailyFX: [6]
StockCharts.com: [7]
The Pattern Day Trader: [8]
Forex Factory: [9]
ChartNexus: [10]
Trading Strategies Guide: [11]
Trend Trader Daily: [12]
Trading Room: [13]
Alpha Trades: [14]
FX Leaders: [15]
Forex Signals: [16]
Million Dollar Trader: [17]
Trading Strategy Guides: [18]
Bear Bull Traders: [19]
The Trading Channel: [20]
Techopedia: [21]
WikiFX: [22]
TradingView Ideas: Search "triple top" or "triple bottom" on TradingView for real-world examples.
YouTube: Search for "triple top trading strategy" or "triple bottom trading strategy" for video tutorials.

Technical Analysis is a crucial skill for implementing these strategies effectively. Understanding chart patterns like these can significantly improve your trading decisions. Remember to always practice risk management and continue to learn and refine your skills. Candlestick patterns can also provide valuable confirmation signals.

Start Trading Now

Sign up at IQ Option (Minimum deposit $10) Open an account at Pocket Option (Minimum deposit $5)

Join Our Community

Subscribe to our Telegram channel @strategybin to receive: ✓ Daily trading signals ✓ Exclusive strategy analysis ✓ Market trend alerts ✓ Educational materials for beginners