Introduction
Trading can be complex. You need to know how to read various charts and patterns to profit from the stock market. As a trader, you must be aware of how quickly things can change in the market. In order to assist you in your trading practices, here we have a guide on using the Triple-Top pattern. This pattern helps you understand when the sellers might be gaining the upper hand over buyers. Keep reading to find out more.
What is a Triple-Top pattern?
A Triple-Top pattern refers to a bearish reversal pattern in which the price of an asset attempts to break above a high level three times but fails. The pattern indicates that the buyers are losing strength and the sellers are gaining control. It completes as the price drops beneath the support level, linking the two pullbacks amid the peaks.
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The Triple-Top pattern is essential for technical analysis because it signals a potential change in the trend direction. It indicates a loss of momentum in the uptrend and suggests a possible downtrend start. The pattern also provides a simple entry, exit, and stop-loss point if you want to take advantage of the reversal.
How to identify a Triple-Top pattern?
To identify a valid Triple-Top pattern, you need to look for the following criteria:
- The price must reach a high level three times, forming three roughly equal peaks. The peaks should not be too close or too far apart and have at least ten trading days between each peak.
- The price must pull back after each peak, forming two valleys approximately in equal depth. The valleys should be shallow enough. At least a 10% retracement from the peak to the valley is good.
- The volume must decrease as the price forms the peaks and increase as the price breaks below the support level. The volume trend means the buyers' weakening and the sellers' strength.
- The support level must be a horizontal line that connects the two valleys. It acts as a floor for the price and a trigger for the pattern completion. The support level should not be sloping up or down, as that would mean a distinct pattern.
How to trade a Triple-Top pattern?
To trade a Triple-Top pattern, you need to follow these steps:
- Wait for the price to break below the support level and close below it. This is the entry signal for the pattern. Do not enter the trade before the pattern is completed, as the price may still bounce back from the support level and invalidate the pattern.
- Place a stop-loss order above the highest peak of the pattern. This is the exit signal for the pattern. If the price moves above the highest peak, the pattern has failed, and the uptrend has resumed. You should cut your losses and exit the trade as soon as possible.
- Set a price goal determined by the height of the pattern. The pattern's height is the distance between the highest peak and the support level. You can subtract the pattern's height from the support level to get the price target. For example, if the highest peak is 18,000 and the support level is 17,500, the pattern's height is 500. You can subtract 500 from 17,500 to get the price target of 17,000.
- Monitor the trade and adjust your stop-loss and price target according to the market conditions. You can use trailing stop-losses, moving averages, or other indicators to lock in your profits and protect your capital.
You can use a simple tool on your charting software to draw the resistance and support lines for the pattern, like a trendline or a horizontal line. Alternatively, you can use a more advanced tool like a Fibonacci retracement or an Andrews pitchfork to measure the potential price movements and targets.
Conclusion
The Triple-Top pattern signals a bearish reversal. When an asset hits a high three times without surpassing it, it suggests weakening buyer strength and increasing seller control. The pattern concludes with a price drop below the support, linking the two pullbacks amid the peaks.
The Triple-Top pattern provides a clear entry, exit, and stop-loss point for traders who want to take advantage of the reversal. The pattern also provides a price target based on the pattern's height. It can be confirmed by using indicators, oscillators, and candlestick patterns that validate the pattern and the reversal.
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