Triple Top (3 peaks) is a fairly reliable reversal price model, created after the Double Top model could not be completed. In the Japanese candle system, this pattern is also known as the Three Mountains. In the following article, we will introduce you to identities, points to note and trading strategies with this famous model.

What is Triple Top?

Triple top (3 peaks) is a strong reversal price pattern made up of 3 similar price peaks, located close to each other. Visually speaking, Triple Top is shaped like 3 letters A (AAA). This model is applicable across all different time frames.

It is noticeable that the Triple Top was created after the price failed to form a Double Top model, so the signal generated from this model will be even stronger than its cousin ( Double Top)

Features of Triple Top

To identify the Triple Top pattern, we rely on the following principles:

The Triple Top pattern occurs when the market goes up and peaks, then corrects down and then rises and then peaks in the same area, then corrects again and then increases again one last time to make a peak. 3rd.

Along with the 3 vertices created, the model will also have 2 VV-shaped bottoms below. Connecting these 2 bottoms together and extending to the right will help us later.

This is a bearish reversal pattern, so it will usually appear in an uptrend and the stronger the previous uptrend, the greater the force of the reversal.

Remember that the line connecting the 3 peaks of the pattern forms a resistance and the 2 lower troughs act as support.

Psychological evolution of the Triple Top model

The ancients said "Too busy 3 busy". The 3 peaks of the pattern appeared close together showing that the bulls have attacked 3 times on the upside but have failed and failed to break through the resistance. This development shows the exhaustion of the "bull". Also at this time, sellers will be more active, they accept orders at higher prices and create a balance between buying and selling forces.

Finally, after 3 unsuccessful attempts, the "bears" became excited when they realized that the "bull" had exhausted their strength and could not push prices higher, they entered the market forcefully and pushed the price. down. At the same time, discouraged buyers may have to turn to join the aggressive seller.

Target price of the Triple Top model

Triple Top is a bullish reversal pattern, and a signal will be given when price breaks below the support line that connects the 2 bottoms below. At this support, the breakout target of the price is equal to the distance from the top of the model to the bottom of the model. However, Bulkowski (2008) proposed that the price target should be only 40% of the distance from the top to the bottom.

Actual example of the Triple Top model

The above is a perfect practical example for the Triple Top model on the AUDUSD currency pair D1. Appearing in an uptrend with a steep upward slope, the price met resistance and was unable to overcome three times, eventually breaking down the support line connecting the two bottoms below. The distance between the top and the bottom of the model is marked as "H". Theoretically, after breaking support, the price dropped to a segment exactly equal to "H" before rebounding.

Guide to trading with the Triple Top model

Traditional transaction methods

According to the traditional method, a sell signal will be given when the price breaks down the support line connecting the 2 bottoms below as shown below:

When entering the order in this way, the stop loss (stop loss) will be placed above 3 peaks and the take profit level (profit taking) will be equal to the distance between the top and bottom of the model. This means that if the price at the top is $ 100, the price at the bottom is $ 90, the distance will be $ 10, inferred the profit-taking point will be $ 80 ($ 90 - $ 10).

However, in reality, sometimes Triple Top does not appear perfectly. If the 2 bottoms of the model are quite far apart, the support line connecting these 2 bottoms will have a quite uncomfortable slope, making it difficult to find entry points. In this case, the entry point of the first order is when the price breaks below the higher low and the entry point to the second order appears when the price breaks below the lower level as shown below.

Active trading method

This method is a bit more risky when we will enter the order at the moment the price is going up to hit the overhead resistance. Although this method is more risky, meaning that there is a lower probability of success, it offers a very attractive risk / reward ratio. If prices follow the pattern, it means that we have sold at the top and entered the order on the first day of a downtrend.

The stop loss is placed a little above the resistance level, the take profit point will be the target of the pattern or more.

When trading in this way, you should look for additional support signals such as divergence signals for example, will be very helpful.

summary

The Triple Top pattern is characterized by 3 nearly equal peaks, a reversal price pattern, giving a sell-off signal to the support line. In addition, the above article also introduces you to trading strategies, entry points, reasonable stop-loss / take-profit. Good luck!

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Author: Tin Nguyen

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