Similar to the double top, the triple top has three distinctive highs as the name suggests. Starting with a rally to the first high, the pattern will then pullback before a second rally pushes the first high. Suddenly, the sellers overwhelm the buyers and the price falls once more. However, the process occurs again and the buyers submit which sees the support levels broken and results in a huge decline.
By subtracting the difference between the first top and the reaction low from breakout level, the technical target can be found. As soon as the third ‘top’ takes place, the breakout level can be found at the low in between the second and third high. When the stock falls right through this point, the pattern is complete.
Due to the very nature of the pattern, it is easy to get confused and spot a number of other patterns forming before the triple top. For example, the formation will look like a double top before the third high. With three equal highs, it can also look similar to an ascending rectangle or triangle.
Previous Trend - For a triple top, there needs to be long trading range or an uptrend in place beforehand. Whilst sometimes there can be months of sideways trading after an uptrend phase, there can also be a definitive uptrend to reverse.
Volume - Over the duration of the pattern, the volume will generally decline but it may increase slightly towards the highs. Normally, an increase in volume is seen after the third high and the subsequent break which then reinforces the pattern.
Three Highs - With plenty of space between them and marking important turning points, the three highs need to be at a similar level.
Support/Resistance - Over time, the support will be tested and has the potential to become resistance. With the rally that follows, the resistance can also be tested in return.
Support Break - Until the support break occurs, the pattern isn't considered as complete. What is the key support level? The lowest point of the pattern up until the break.
Price Target - To formulate a price target, you can take the distance between the highs to the support break and then subtract this from the support break itself. As the pattern develops over time, the break becomes more and more significant. However, a triple top that hits the six-month mark is considered to be less effective after breaking.