Triple Top

Definition

A Triple Top is a bearish chart pattern used in technical analysis that is characterized by the rise and fall of a security’s price to nearly the same level on three occasions. Each peak of the price is considered a ‘top’. When the price falls below support levels after the third top, it can signal a reversal in trend from bullish to bearish.

Phonetic

The phonetics of the keyword “Triple Top” is /ˈtrɪpəl tɒp/.

Key Takeaways

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1. Characteristics: A Triple Top is a popular chart pattern used in technical analysis that’s characterized by three peaks at nearly the same price level. The peaks are followed by a decline below the support level.
2. Indication: This pattern is typically considered a signal that the security could be losing its value and may enter into a period of declining prices, or a bear market, hence it’s often seen as a bearish reversal pattern.
3. Usage: Traders often use Triple Tops as a way to identify price levels for selling or avoiding an asset. Once the pattern is complete with the fall below the support level, traders may sell the asset expecting a bearish trend.

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Importance

The term “Triple Top” is significant in the field of business and finance, particularly in technical analysis because it signals potential market reversals. It is a type of chart pattern used in technical analysis to predict the potential reversal of an uptrend in a financial market. The Triple Top pattern looks like three peaks at virtually the same price level with two valleys between them. These are the resistance levels that a security or index has trouble moving beyond. When this happens, analysts often interpret it as signaling a strong likelihood that the upward trend is coming to an end, and a new downtrend may be forthcoming. This pattern is used by investors and traders to make strategic decisions about buying or selling assets, thus contributing to effective decision-making in the market.

Explanation

The Triple Top is a frequently employed concept in the field of technical analysis, used by traders and investors to discern and predict potential trends and movements in the market. Its primary purpose is to indicate a reversal in a stock or market’s upward trend, signifying an imminent shift to a downward or bearish trend. It is formed on a price chart when a security’s price reaches a particular high point three distinct times, with minor declines in between – thereby creating three ‘peaks’. The verification of a Triple Top comes when price decisively breaches the level of support defined by the lows between these peaks.This pattern is instrumental for market participants as they make decisions about holding or selling stocks. Maximal profitability occurs when trades are placed just after the pattern’s confirmation, which occurs when the support level, also known as the ‘neckline’, has been broken through. As the Triple Top flags the transition from a bullish to bearish market, it sheds light on the right time to either exit long positions or enter short ones, thus assisting traders and investors in capitalizing on downward market movements. While it isn’t foolproof, the Triple Top is a reliable predictor of trend reversals when used prudently alongside other technical indicators.

Examples

The Triple Top is a technical analysis term that refers to a market trend reversal pattern. It’s comprised of three peaks, all approximately at the same price level, indicating that the asset is facing resistance at that price level each time. Here are three real world examples:1. Bitcoin in 2018: Bitcoin reached a price around $10,000 three times within a few months, creating a triple top pattern. After each peak, the price saw a significant dropdown, indicating that $10,000 was a strong resistance level for the cryptocurrency. 2. General Electric in 2007: The stock of General Electric Co. reached a peak of around $42 three times during 2007, resulting in a triple top pattern. Each time the price reached that level, it fell back, suggesting resistance at $42. Eventually, the stock broke the pattern and started a strong decline.3. Gold in 2011-2012: The precious commodity gold hit the price of roughly $1800 per ounce three times over the span of a year creating a Triple Top pattern. After each of the peaks, the price retreated, suggesting that $1800 was a price level at which many investors decided to sell gold. Subsequently, Gold prices entered a long-term bear market.

Frequently Asked Questions(FAQ)

Related Finance Terms

• Resistance Level
• Trend Reversal
• Technical Analysis
• Chart Patterns
• Bearish Indicator

Sources for More Information

• Investopedia
• BabyPips
• Daily FX
• The Balance