In technical analysis the triple top chart pattern can be a possible signal for a reversal lower in price. This pattern is formed when price action find resistance inside a price zone three separate times. This type of price behavior can give clues that there are no buyers at higher prices above that resistance zone to cause a breakout and a trend continuation.
This pattern shows a high probability that an uptrend in price has ended and that it could reverse back lower. A new break out to higher prices and holding above the third peak is a new momentum signal and changes the chart sentiment to bullish.
A triple top chart pattern can happen on any time frame, but is only considered valid if it happens after an uptrend.
A triple top is created when price action forms three peaks very close to the same price area. These three peaks can be connected by a horizontal trend line and be considered resistance. You will also see swings lower in price between all three peaks that happen. The triple top is confirmed if the third pullback after the third peak undercuts the previous swing low. This break down below the swing lows is considered the sell short signal.
The triple top price peaks are similar in technical dynamics to the head and shoulders chart pattern; the difference is that instead of the “head” and “shoulders” all three peaks are closer to equal in magnitude. The double top is also similar except the triple top has one more equal top. These three are all types of reversal patterns and are bearish in the short term.
Many technical analysts will use the failure of a breakout of the third price peak to sell long positions. If a short signal is established at the third price peak a popular stop loss is set if the price break and trends above that previous level.
The opposite of a triple top is a triple bottom which is an inverse signal that a chart has likely found a bottom.
Here is an example of a triple top chart pattern being formed on Chewy stock.
- Price has found resistance near the $52.50 price area three times to create three peaks.
- A break below the last swing low of $44.31 would confirm the triple top pattern and would signal a sell.
- A break above the high price resistance of $52.77 would signal a breakout to higher prices and invalidate the triple top pattern.
Chart Courtesy of StockCharts.com
