Written by and copyright © 2005-2013 by Thomas N. Bulkowski. All rights reserved.
For more information on this pattern, read
Encyclopedia of Chart Patterns, Second Edition,
pictured on the right, pages 779 to 794. That chapter gives a complete review of the chart pattern, including tour, identification guidelines, focus on failures, performance statistics, trading tactics, and sample trade. Below is just a sliver of the information contained in the book.
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.
Triple Tops: 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%
The above numbers are based on hundreds of perfect trades. See the glossary for definitions.
Triple Tops: Identification Guidelines
|Price trend||Upward leading to the pattern.|
|Shape||Three peaks near the same price with a downward breakout.|
|Middle peak||Sometimes the middle peak is priced marginally below the other two.|
|Volume||Trends downward 59% of the time, but is usually high beneath formation of each peak.|
|Bear market||More triple tops appear in a bear market than in a bull one.|
|Confirmation||The pattern becomes valid when price closes below the lowest valley in the pattern.|
Triple Tops: Trading Tips
|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
|Price reversal||Price must have something to reverse, so if the rise leading to the pattern is small, expect a small decline.|
|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.|
|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.|
|Price velocity||A high velocity rise leading to the pattern often results in a larger decline post breakout.|
|Yearly high||Patterns in the highest third of the yearly price range perform best.|
|Volume trend||An upward volume trend suggests better post breakout performance.|
|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.|
|Pullbacks||Pullbacks hurt post breakout performance.|
The Measure Rule
Triple Top 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.
-- Thomas Bulkowski
Other Triple Top Examples
Copyright © 2005-2013 by Thomas N. Bulkowski. All rights reserved. Make it idiot proof and someone will make a better idiot.