What are Triple top and Bottom Signals?

The triple top and bottom patterns are uncommon chart patterns used to predict the market’s direction. While this pattern is hardly seen on charts, it is very powerful. The triple top pattern is a bearish reversal pattern, while the triple bottom pattern is a bullish reversal pattern.

What Is the Triple Top Pattern?

The triple-top pattern is a bearish reversal pattern that forms at the end of an uptrend. The pattern takes the appearance of three “inverted Vs” or cones. As the name implies, the pattern has three peaks, or resistance points. All three resistance points are at equal price zones.

The appearance of three peaks alone does not guarantee the existence of the triple top pattern. For the triple-top pattern to be formed, there must be an initial bullish movement.

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How the Triple Top Pattern is Formed

Although the triple top pattern is a bearish reversal pattern, it emanates from a bullish run. Price keeps soaring when traders buy a cryptocurrency for a certain period. As buy pressure increases, the crypto asset forms a series of highs.

Eventually, the buying force or bullish momentum of the trend cools down. When this happens, and the cryptocurrency has reached its peak, a significant price drop occurs, leading to the formation of a trough.

At this point, some traders identify the price drawback as an opportunity to buy again. On the other hand, some other traders exercise caution, taking some or all of their profits.

When optimistic buyers come in again to open buy positions, the cryptocurrency price is pushed upwards, forming another peak. Interestingly, this new peak hardly ever surpasses the previous peak formed. This is because the market has fewer buyers at this point, as many traders have taken profits.

The new peak is formed around the same price level as the previous peak, and sellers come in again to send the price downwards. Like the peak, the new trough is formed around the same price level as the previous trough. The same process happens a third time, and an almost equal peak is formed.

The chart pattern reveals that the bullish strength has declined, and the bears’ sell-pressure has equaled the bulls’ buy pressure. Eventually, the bulls lose their battle with the bears, and the consistent formation of equal peaks and troughs ends.

The troughs or previous lows formed finally get broken, and the sell volume of the crypto asset increases significantly.

How to Trade the Triple Top Pattern?

To trade the triple top pattern successfully, you need to understand the formation of the pattern and significant price levels. With a proper understanding of these, you can execute your trade well and set your price targets flawlessly.

Setting Your Entry

You enter the market or open a sell position once a breakout to the downside has been confirmed. This means a sell order should be created around the region below the recent lows formed. If you are following the live market movement, you must wait for a candle to close below the troughs or support before activating your sell order. A candle close can be confirmed on a lower time frame.

Why is it important to wait for a close below the support? This is because sometimes, what may have seemed to be a breakout ends as a mere consolidation before the bullish momentum resumes.

Setting Your Stop-Loss

The stop-loss should be placed just above the peak of the pattern. A break above this resistance usually invalidates the triple bottom pattern and could mean a continuation of the bullish motion. Thus, the width of the stop-loss depends on the distance from the resistance to the support.

Setting Your Take-Profit

The take-profit value is usually proportional to the stop-loss. Some traders set their take-profit at 1:1 with the stop-loss. This means the TP should have an equal distance from the entry with the resistance. To maximize potential profits, some traders use the length of the bull run before the triple top formation to determine their profit levels. This extends the TP level, especially for triple top patterns formed from a lengthy bull run.

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What Is the Triple Bottom Pattern?

The triple bottom pattern is a chart pattern that appears like a “W” with an “M” in between. Just like the triple top pattern, it consists of peaks and troughs or support and resistance levels. The key difference is the position of the peaks and troughs and the price’s direction.

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The Formation of the Triple Bottom Pattern

The triple bottom pattern is formed after a long decline in an asset’s price. When the bears are in control, they force the price of a cryptocurrency down. Following the chart’s downtrend and a formation of lower lows, the bears run out of ‘fuel’ at some point. However, the shift in market direction is not spontaneous. It occurs gradually after a series of peaks and troughs.

When the bears run out of gas and buyers come into the market again, they tend to push the price of the cryptocurrency upwards, but not for so long. The slight upward push is not maintained initially, as sellers step in to push the price back down. These up-and-down movements happen about 2-3 times before a price breakout occurs.

A price breakout to the upside signals a shift in market direction and the beginning of a bullish run. The length of a bullish run could last for a long period if a huge volume backs the upward move.

How to Trade the Triple Bottom Pattern

The Triple bottom pattern can be easily traded once significant price levels have been identified.

The Entry

Like the triple top pattern, a triple bottom entry should be placed close to the break in the market structure. Once the price closes above the last resistance formed, a buy position can be opened.

Also, since the support and resistance levels may not be perfectly aligned horizontally, a trendline connecting the resistance levels can be used to determine the entry. A buy position can be opened once the price closes above the trendline.

The Stop-Loss

The stop-loss should be set around the support levels. Again, a trendline could be handy if the price levels do not perfectly align.

The Take-Profit

The take-profit should equal the distance between the support and the resistance. Alternatively, the take-profit can be equivalent to the distance between the high at the start and the high at the end of the downtrend.

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Pros of the Triple Top and Bottom Patterns

• The triple top and bottom patterns are highly likely to play out. Although, just like every other chart pattern, a 100% success rate is unachievable.
• Both patterns can provide traders with an early warning of a potential reversal. The start of the triple top and bottom formation could trigger traders to take profits before a reversal occurs.

Cons of the Triple Top and Bottom Patterns

• The triple top and bottom patterns rarely occur on crypto assets.
• It is difficult to find a perfectly formed triple top and bottom pattern on the chart, which could increase analysis difficulty, especially for new traders.
• The formation of the pattern could test the patience of traders as it takes a long time to be formed. Notably, this also depends on the timeframe the analysis is executed from.
• The Risk to Reward Ratio (RRR) for the triple top and bottom patterns is relatively small. Typically, it offers a 1:1 risk-to-reward ratio. This makes the pattern unsuitable for traders with low-risk appetites.

The Difference Between the H&S Pattern and the Triple Top Pattern

The psychology behind the formation of the head and shoulders pattern is the same as that of the triple top. Because of this, some trading noobs often mix this up. Interestingly, both patterns can be differentiated.

The key difference between both patterns is in the head. For the head and shoulders pattern, the second peak is significantly higher than the peaks formed on the right and left sides. This gives the pattern its famous name – Head and Shoulders.

Unlike the H&S pattern, the triple top pattern has equal or almost equal peaks. If the price levels of the peaks differ, the discrepancy is negligible. No notable middle peak rises above the right and left peaks. The same principle applies to the inverted H&S and triple bottom patterns.

Conclusion

Although the triple top and bottom patterns do not appear daily on cryptocurrency charts, they are still very effective patterns for cryptocurrency traders. The formation of the triple top pattern is not just an entry signal for sellers but also an exit signal for buyers. Likewise, the formation of the triple bottom pattern can serve as an exit signal for sellers. Both patterns can help traders protect their portfolios as they perceive a change in the market’s direction.

As with other chart patterns, it is best to use the triple top and bottom pattern in conjunction with other signals or indicators. Combining the pattern with trade volume has proven to be effective for traders.