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Triple Top

Triple top formation

The triple top consists of three peaks "AAA" that are roughly at the same price level creating an area of overhead resistance as well as two valleys "VV" that create an area of support. Price enters the triple top formation from below and exits the formation below by breaking down through support.

Psychology of Triple Top Reversal Pattern

psychology of triple top

The psychology of the triple top pattern is given next: The triple top occurs during an uptrend. Prices rise creating a new high (left peak of triple top) and then fall creating a higher low (left valley of triple top). Thus far the chart is exhibiting a solid uptrend (higher highs and higher lows). Bulls probably saw the left valley as buying opportunity because prices rose yet again. However, this middle peak failed to create much of a higher high. Prices retrace once again and then attempt to move higher. However, on the right peak, prices fail to surpass the previous two peak prices. The resistance line created by the highs of the previous two peaks stands and signifies a large hurdle that bulls will have to overcome. Thereafter, a decision has to be made after prices retreat from the third peak – will bulls attempt to push prices higher and break resistance and create a new high or will bears seeing the previous weakness of the bulls decide to break below support and create a new downtrend? Once support is pierced, the decision has been made and after a very typical retracement higher back to the area of prior support, it is likely that prices will move lower.

Sell Signal and Average Breakout Decline

red arrow pointing downward signifying the average breakout decline

A sell signal is given when prices break below the support line after the third and final peak "AAA". According to research done by Bulkowski (2005) the averaged maximum decline after the sell signal is given is 19%; do note however that pullbacks after the sell signal has been triggered back to the support line are very common, happening about 61% of the time; also note that the performance of the triple top is superior when the formation occurs within the top third of the 52-week (yearly) price range. Note that Kirkpatrick & Dahlquist (2010) state that the triple top is quite rare but its failure rate is "very low" (p. 313).

Price Target

Typically classical technical analysts project a price target by taking the height of the pattern (in this case the peak minus the valley) and subtract that from the support line price. However, Bulkowski (2008) offers a more specific formula for the triple top target price:

Triple Top Downward Price Target: Lowest Price of the Valleys - ((Highest Price of the Peaks - Lowest Price of the Valleys) * 40%)

Triple Top Chart Example

chart example with a triple top pattern

The chart above of AT&T (T) shows a triple top chart formation. After the left peak of the pattern, the bulls attempted another two times to make a higher high, but failed twice. Viewing the overhead resistance, bulls were unable or unwilling to attempt another time. Once prices broke below support and the triple top chart pattern sell signal was triggered, the bears took control and pushed prices lower. This particular chart did not see a pullback after the sell signal was given.

Works Referenced

  1. Nison, S. (2003) The Candlestick Course. Hoboken: John Wiley & Sons.
  2. Nison, S. (1994) Beyond Candlesticks: New Japanese Charting Techniques Revealed. New York: John Wiley & Sons.
  3. Nison, S. (1991) Japanese Candlestick Charting Techniques. New York: New York Institute of Finance.
  4. Rhoads, R. (2008) Candlestick Charting For Dummies. Hoboken: Wiley Publishing.
  5. ThinkorSwim. (2011). ThinkorSwim Resource Center: Candlestick Patterns Library.
  6. The Pattern Site. (2005). Bulkowski's Triple Tops . Retrieved June 1, 2012, from