What is a Triple Top Pattern?
Triple Top formations are reversal patterns with the bearish bias, this pattern is not often seen in the forex market (also note Triple Bottoms, Double Bottoms, and Double Tops). Triple Tops are identified by three consecutive highs of similar (or almost) height with 2 moderate pullbacks in between (neckline).
The triple top can be a major reversal pattern (if found on a daily chart or bigger timeframe) that can be formed after an extended uptrend. This pattern is confirmed when the currency pair price breaks from (the third peak) above through the neckline and the most likely price direction is now DOWN.
What does a Triple Top formation look like?
A triple top formation is a distinct chart pattern characterized by a rally to a new high (peak1 or resistance1) followed by a moderate pull back (10 -20%) to the neckline (support level), a second rally to test a new high ( peak2 or resistance2) followed by a moderate pull back (10 -20%) to the neckline (support level) and finally a third rally to test a new high (peak3 or resistance3).
The three peaks (highs or resistance levels) are at approximately the same price level. Following is a pull back to below the neckline (support).
How to trade this pattern?
Go short below the neckline (support level) when the currency pair price breaks from (its third peak) above since the most likely price direction is now DOWN. Place your stop couple of pips above the third peak price!
Your target must be at least twice the distance from the third peak break to the neckline.
Example: If the third peak price is at 1.2300 and the neckline is at 1.2250, your target level must be at least 100 pips when trading the breakout!