Introduction
When something has appeared enough times on a chart in any traded market, it becomes a reliable pattern. We know that price moves like snakes and ladders, resulting in a massive array of formations.
Think of head and shoulders, triangles, the diamond, flags, and Doji star, to name a few. The one we’ll focus on here is the triple top and triple bottom. This is simply an extension of the double top and double bottom pattern.
The main difference is that one has an extra peak and trough. Everything else remains the name. Triple tops and triple bottoms frequently appear across all time frames, and you can find them in many markets like FX, crypto, options, metals, stocks, etc.
Let’s look at the triple top pattern and triple bottom pattern in more detail.
What is a triple top and triple bottom?
A triple top occurs when three defined consecutive peaks (or ‘tops’) bounce from a resistance zone. On the other hand, a triple bottom is formed with three defined successive troughs (or ‘bottoms’) rebounding from a support level.
In either case, both of these are reversal patterns. The triple top is a bearish reversal formation as it appears when a market is trending upwards. A triple bottom is a bullish reversal set-up because it forms during a sell-off.
You’ll notice that this set-up is strikingly similar to the head and shoulders. The main difference is that the middle peak or trough is the same height as the others. On the head and shoulders, it is higher than the adjacent two.
The triple top and triple bottom are examples of consolidation phases. We know that the price during any trend will not travel in one direction indefinitely. There will always be a brief pause as buyers or sellers are taking profits and new participants enter the market.
These moments cause a retracement, a sign of uncertainty about the future prediction. The ‘breakthrough’ level (as in the image above) is where traders enter the pattern. This is a point which confirms the reversal is in full swing.
The extra time it takes to form makes the triple top and triple bottom better than the double top/double top. The fact that the price fails to break the support or resistance zone two times makes it a more reliable pattern.
Like several other patterns, your stop loss should go at the resistance level for the triple top or at the support level for the triple bottom. The profit target is the height distance from the top/bottom to the breakout level.
Identifying and trading the triple top and triple bottom
Like most chart patterns, you won’t know if a triple top pattern or triple bottom formation is present until after some time. Yet, you can stand ready with your trend lines once the third peak or trough has appeared.
The entry is the most crucial part of a breakout set-up, like the triple top and triple bottom. It is a conservative method to enter once the price breaks the level holding the pattern. This minimises the chances of the set-up failing when entering too early (although you can do this, depending on other factors we’ll cover letter).
Another technique is waiting for a 50% Fibonacci retracement after the breakout. This can allow for a tighter stop than the traditional method, where your stop is usually larger. Yet, it is possible to miss more positions with the alternative way because the price doesn’t always retrace.
Best tools to use with the triple top and triple bottom
Traders are always looking for ways to increase their chances of success with patterns. It is no different with the triple top and triple bottom. Confluence matters. The more things align on your chart when trading this pattern, the better.
So, here are the things to watch. We will incorporate all these elements in the next section with real chart examples for better demonstration.
Price action
We mentioned the possibility of a failed or false break with triple tops and triple bottoms. A simple way to judge between a true breakout from a false one is the candle. Ideally, you’ll want to see a full-bodied candle like a Maribozu (or a candle with a little wick) that breaks the level.
It is possible to see pin bars or candles with more wick. These are typically signs that the market is rejecting the zone, making it likely that the price will revert in the other direction.
So, keep in mind the price action at the breakout level. A full-bodied candle gives more confidence of the reversal’s force.
Momentum
This concept relates to what we’ve referenced now. You want to see strength to confirm the triple top and triple bottom. Aside from the price action, using a momentum indicator like the Relative Strength Index (RSI) can be helpful.
Here, the indicator should be beyond an overbought or oversold level. This would suggest extreme bearish or bullishness, which is necessary for the breakout.
Divergence
Divergence is common with momentum indicators or oscillators like the RSI. This can give you an early signal of the reversal before the price hits the breakout level. Here, you would look for divergence between the price and indicator as the third peak/trough is forming.
Chart examples of the triple top and triple bottom
Okay, enough talking. Let’s get busy with the charts. Our first example looks at the triple bottom on the 1HR chart of AUD/CAD. We are demonstrating the alternative 50% entry technique here.
We see the market went out of the breakout level once the three bottoms were formed. Yet, the price retraced to the 50% Fib level, allowing for a more favorable entry. This forex pair covered the distance of the pattern’s height after the breakout level, which would have been your profit target.
Now let’s look at the triple bottom on the 4HR chart of CHF/JPY.
Here, the market pierced the breakout level with a nicely defined bearish Maribozu. This is an example of using price action as the first sign that this pair was likely to trend downwards.
The second confirmation is, of course, the bearish momentum on the RSI. We see that it went oversold at the same time as the breakout. This would have added more conviction of strong selling force, which eventually caused the decline.
Our last example observes using divergence with this pattern. The chart below is the 4HR time frame on Ethereum.
This illustration shows how you can achieve an earlier entry (although it’s riskier). At the third peak, we see hidden divergence on the RSI. This would have been the first sign of a potential reversal.
The hammer candle is a nice candle with a long wick and a small body. As mentioned before, this suggests rejection, further adding to warnings of a reversal. So, you could have entered after this candle closed.
Afterwards, we see a bearish Maribozu approaching the breakout level, eventually going through it.
Conclusion
The triple top and triple bottom is an intriguing and reliable reversal pattern that’s easy to identify and trade using simple rules. But, like any formation, context is key. Forming a solid trading idea is about creating a story.
The triple top and triple bottom should be a small part of the narrative, not the entire thing. In simpler terms, you shouldn’t trade by seeing this pattern alone. Instead, combine as many elements (including those we discussed) to have a well-rounded set-up.
