Trading the triple Top Chart Pattern

The triple top chart pattern is widely used by the long term trader. This a bearish reversal pattern indicating that the current trend is going to end. Typically this pattern forms after a long uptrend which rules the market for more than 3 months. Many professional traders consider the triple top chart pattern as the major bearish reversal chart pattern. The failed three attempts to go higher is a significant event for the currency pair which clearly represents bearish momentum. Longer term bearish reversal is confirmed by this type of chart pattern.

Let’s look at an example of triple top chart pattern



Figure: Triple Top chart pattern formation in USDJPY, daily

In the above figure point A, B and C form the triple top of the chart pattern. At point C bearish signal must be present in order to confirm that point C is the last and third Top of this pattern. PQ is the neckline which acts as temporarily weak support for the formation of the triple top. A valid break of the neckline PQ confirms that bearish momentum has taken place in the market.

Trade setup

After the first two top traders wait cautiously for the third top to form in this type of chart pattern. It is important that the high of Top2 and Top3 doesn’t exceed the high of top 1.Once the market makes the third attempt to go higher and fails by forming a bearish candlestick pattern traders wait patiently for the breakout.

Many aggressive traders take sell entry when a bearish reversal candlestick pattern is formed at the third top to ride the new trend early. In that case, they use a tight stop loss which is just above the high of top1.On the contrary, the conservative trader waits for the valid breakout of the neckline to enter the trade. On the breakout, entry trader puts their stop loss just above the neckline and enjoys the new trade.

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