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Triple tops are chart patterns with decent performance in a bull market. The failure rate is
higher than I like to see, but the average decline is reasonable. Thus, if you own a stock and the triple top confirms (
price closes below the lowest valley in the pattern), then consider selling immediately. For more information see pages
779 to 794 of the book Encyclopedia of Chart Patterns, Second Edition and the following...
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 Triple top chart pattern
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Important Bull Market Results
Overall performance rank (1 is best): 7 out of 21
Break even failure rate: 10%
Average decline: 19%
Pullback rate: 61%
Percentage meeting price target: 40%
Identification Guidelines
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Characteristic |
Discussion |
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Price trend |
Upward leading to the pattern |
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Shape |
Three peaks near the same
price with a downward breakout. |
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Middle peak |
Sometimes the middle peak
is priced marginally below the other two. |
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Volume |
Trends downward 59% of the
time, but is usually high beneath formation of each peak. |
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Bear market |
More triple tops appear in
a bear market than in a bull one. |
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Confirmation |
The pattern becomes valid when price closes below the
lowest valley in the pattern. |
Trading Tips
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Trading Tactic |
Explanation |
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Measure rule |
Compute the height from the highest peak
(point B in the Measure Rule figure to the right)
to the lowest valley (A) and then multiply it by the
above “percentage meeting price target.” Subtract
the result from the lowest valley (A) to get a price
target (C). |
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Price reversal |
Price must have something
to reverse, so if the rise leading to the pattern is small, expect a small decline. |
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Confirmation |
Wait for price to close below the
lowest valley (confirmation, point A in the Measure
Rule figure to the upper right) before placing a trade. |
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Peaks |
When the last peak (point B
in the Peaks figure to the right) is below the middle one
(A), then expect a stronger decline. A lower top
suggests weakness as price attempts to make a new high but fails.
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Price velocity |
A high velocity rise leading to
the pattern often results in a larger decline postbreakout. |
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Yearly high |
Patterns in the highest third of
the yearly price range perform best. |
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Volume trend |
An upward volume trend suggests
better postbreakout performance. |
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Quick decline |
A quarter of the tops reach the
ultimate low in the first week after a breakout. A third bottom in less than 2 weeks. |
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Pullbacks |
Pullbacks hurt postbreakout performance. |
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 The Measure Rule
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 Peaks
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Example
The above figure shows an example of a triple top chart pattern with tops at 1,
2, and 3. Price does not rise far leading to the triple top and
the decline after the triple top confirms (price closes below the blue confirmation line) is not that large either. A
pullback brings price back up to the confirmation line before resuming the decline.
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