Triple top and Triple bottom Patterns guidelines (PDF)
Triple top and triple bottom patterns are types of forex chart patterns and they are similar to the double top and double bottom patterns. This pattern appears when the price forms three peaks or three bottoms at almost the same price level. However, stocks and shares traders use it to forecast the reversal of trends. Therefore, a triple top is a bearish reversal pattern, indicating that the current uptrend will reverse to a downtrend. whereas, the triple bottom is a bullish reversal pattern, indicating that the current downtrend will reverse to an uptrend. In this course, we will explain what is the triple top and triple bottom patterns, how to identify them, and how to trade them in forex, stocks, shares, and cryptocurrencies.
Triple top and Triple bottom patterns
What are Triple top and Bottom pattern ?The triple top and triple bottom patterns are reversal chart patterns. This means that when the pattern fully formed the previous trend is over and the trend will move in the inverse direction. However, This reversal pattern can work in the future, stock, and forex markets, across all time frames. As its name suggests the pattern consists of three successive tops and bottoms located at the same or nearly the same level. Forex traders use it to examine past price actions and forecast future ones.
Triple top looks like the head and shoulders pattern, as it consists of a series of three high highs. The difference is that all the three tops of the triple top have almost the same height. Whilst, in the head & shoulders the second top is higher than the first and the second top. The same thing with the triple bottom pattern which is similar to the inverse head & shoulders. And the only difference is that the second bottom of the inverse H&S is greater in height compared to the other bottoms. While in the triple bottom all the bottoms have the same level of height.
Triple top Pattern example
Triple top pattern is a bearish reversal pattern that usually forms after a strong uptrend price movement and marks the reversing of the upward direction to the downward direction in the forex market. It consists of three peaks (swing highs) located above a support level (neckline). Indeed, the first peak takes place after an extended uptrend then retraces and forms the first low point. The second peak forms when the price rises again and reaches a level near or the same as the first peak. Then retraces again and creates the second low point. When you connect these two low points together you will obtain the neckline.
After that, the price rises for the third time and gives birth to the third peak which will be at the same level as the other two peaks. And then moves back to the neckline which indicates that the formation of the pattern is completed. But we can not consider the bearish reversal confirmed until the price breaks through the neckline.
Keep in mind that it is not obligatory that the three tops have the same height, just they should not vary too much.
Triple Bottom Pattern example
Triple bottom pattern displays the same formation as the triple top but upside down. It is a bullish reversal pattern that happens at the end of a downtrend. It consists of three bottoms (swing lows) located below a resistance level called the neckline. This pattern indicates that the bears may lose control and the price can soon retrace back higher. After the formation of the first bottom, a new group of sellers arrive at the forex market and try to make a profit on the drop but this is not possible as the volume of the trade is insufficient, and the price starts to rise and reaches a resistance level, which forms the first high point of the neckline.
The second bottom indicates that the bulls gain momentum and prepare for a potential reversal. So, the price rise once again and reaches the resistance level for the second time and forms the second high point. Then the third bottom appears and indicates that there is strong support and bears can give up when the price breaks the resistance level (neckline). In this case, the bullish reversal of the triple bottom pattern is confirmed.
How to identify the triple top Pattern ?
You should ensure that there is a trend first. In this case, you should find an uptrend. Then look for three swing highs at the same level. Once you find them draw the pattern using the tools available on your platform. After drawing the pattern connect the low points to obtain the neckline.
How to identify the triple Bottom Pattern ?
Make sure that the trend starts with a bearish trend. Then look for three swing lows at the same level. Draw the pattern by employing the tools available on the platform. And finally, tie the high points to obtain the neckline.
How do you trade triple top and triple bottom patterns ?
To trade triple top pattern and triple bottom pattern in forex, shares, and stocks markets, you just need to follow these simple steps:
Trading triple top pattern:
Before you enter the trade you should make sure that these conditions are valid:
- The market should be on an uptrend since the pattern is formed at the end of an uptrend.
- The pattern is completed, which means it forms three peaks.
- The price breaks through the neckline (support level). It is preferable that this break accompanied by a rise in volume, because a fall in volume could indicate a false break.
- Entry signal: There are two different methods to enter a trade. The first one is very common, you simply enter the trade once the neckline is broken then open a short position. The second method requires waiting for the neckline to retest to enter the trade, but you can miss a trading opportunity while waiting.
- Stop loss: You should place the stop loss at the third top of the pattern.
- Price target: The price target is equal to the height between the neckline and the tops. This distance represents the minimum target. To do that you should draw a horizontal line on the forex chart that connects the three tops together, then draw a perpendicular line connecting the horizontal line just drawn and the neckline. In the last step, apply this distance downward starting from the neckline.
Trading triple bottom pattern:
before entering the trade you should ensure the availability of these conditions:
- The market should be on a downtrend as the pattern created at the end of a downtrend.
- The pattern is completed, which means that the bottoms should be already formed.
- The price breaks the neckline (resistance level).
- Entry signal: you can simply enter a long position once the neckline is broken. Or if you are a patient person, you can wait for the neckline to retest then enter the trade, but you risk missing a trading opportunity. You can also do both at the same time, entering a position on the initial break and adding another position on the retest.
- Stop loss: The stop loss should be set at the third bottom of the pattern.
- Price target: It is equal to the distance between the bottoms and the neckline. To do that you should calculate the vertical length between the bottom and the neckline. Then project this distance up starting from the neckline. This will represent your minimum target.
Triple top and triple bottom patterns are very good for identifying reversals in forex maket. It is an extended double top and double bottom pattern. However, this pattern looks like the head & shoulders pattern but with only one difference in the second peak which will be higher in height in the H&S.