As of 05/14/2021
  Indus: 34,382 +360.68 +1.1%  
  Trans: 15,917 +215.47 +1.4%  
  Utils: 908 +2.62 +0.3%  
  Nasdaq: 13,430 +304.99 +2.3%  
  S&P 500: 4,174 +61.35 +1.5%  
YTD
 +12.3%  
 +27.3%  
 +5.0%  
 +4.2%  
 +11.1%  
  Targets    Overview: 05/14/2021  
  Up arrow35,500 or 33,000 by 06/01/2021
  Up arrow17,000 or 15,000 by 06/15/2021
  Up arrow950 or 875 by 06/01/2021
  Up arrow14,600 or 12,950 by 06/01/2021
  Up arrow4,400 or 4,000 by 06/01/2021
CPI (updated daily): Arrows on 5/13/21
As of 05/14/2021
  Indus: 34,382 +360.68 +1.1%  
  Trans: 15,917 +215.47 +1.4%  
  Utils: 908 +2.62 +0.3%  
  Nasdaq: 13,430 +304.99 +2.3%  
  S&P 500: 4,174 +61.35 +1.5%  
YTD
 +12.3%  
 +27.3%  
 +5.0%  
 +4.2%  
 +11.1%  
  Targets    Overview: 05/14/2021  
  Up arrow35,500 or 33,000 by 06/01/2021
  Up arrow17,000 or 15,000 by 06/15/2021
  Up arrow950 or 875 by 06/01/2021
  Up arrow14,600 or 12,950 by 06/01/2021
  Up arrow4,400 or 4,000 by 06/01/2021
CPI (updated daily): Arrows on 5/13/21

Bulkowski on Busted Triple Tops

 

Updated with new statistics on 12/29/2020.

The third edition of this book Encyclopedia of Chart PatternsEncyclopedia of Chart Patterns. has a table in most chapters discussing busted pattern performance.

$ $ $

Busted Triple Tops: Summary

Busted triple tops are triple tops in which price breaks out downward and drops no more than 10%, turns around, and then closes above the top of the triple top. The following move in the busted direction (upward) averages 60% (for single busted patterns only), or a 42% gain for all busted triple tops.

Those numbers represent perfect trades so expect different results from actual trades.

Busted Triple Tops: Single Busted

Picture of Bed Bath and Beyond (BBBY) on the daily scale.

Busted triple tops come in three varieties: single busts, double busts, and three or more busts.

The chart of Bed Bath and Beyond (BBBY), pictured on the daily scale, shows an example of a single bust.

Price forms a triple top at A, B, and C, with the three peaks at nearly the same price. The chart pattern confirms as a valid triple top when price closes below the lowest valley in the chart pattern. I show that by the horizontal red line at F. Price continues down to D before stopping at a support area.

Notice that the decline from F to D is less than 10% of F. In other words, price drops no more than 10% before beginning a recovery. That recovery takes price up, closing above the top of the triple top at E.

The close above the highest peak in the triple top means it busted the downward breakout.

Although not shown, price continues higher by more than 10%, confirming that this move is a single bust. That means price busted the downward breakout and continued moving higher until the stock climbed more than 10% above the highest peak in the chart pattern. To qualify as a single bust, price must rise more than 10% above the top of the triple top.

For a single bust, look for:

  1. Price must confirm the triple top by closing below the bottom of the triple top.
  2. Price must drop no more than 10%.
  3. Price rises and closes above the top of the triple top.
  4. Price continues rising more than 10% before either closing below the bottom of the triple top or dropping by more than 20% from a peak.

The last point, 4, means the ultimate high must be more than 10% above the top of the triple top. If price fails to climb more than 10%, then it could be forming a double bust.

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Busted Triple Tops: Double Busted

Picture of MGE Energy (MGE) on the daily scale.

The chart of MGE Energy, pictured on the daily scale, shows an example of a double busted triple top.

Price forms the triple top at peaks A, B, and C. The chart pattern confirms when price closes below the lowest valley in the chart pattern. That price is at D and price closes below it on the way down to E.

The drop from D to E is no more than 10%.

Price reverses direction at E and moves higher, to F. At F, price closes above the highest peak in the triple top, confirming a busted triple top chart pattern. Just after it busts the triple top, the up-move falters and the stock drops down to G.

Notice that G again closes below the horizontal red line. That line represents the lowest valley in the chart pattern. A second close below this line busts the triple top a second time.

If the stock climbed higher than 10% above the highest peak in the triple top (meaning point F was more than 10% above the peak at A in this example), the chart pattern would only be a single bust even though price may have dropped to G.

Since I captured this chart pattern recently, additional price action may change a double bust into a triple bust (or more).

For a double bust, look for these elements.

  1. Price must confirm the triple top by closing below the bottom of the triple top (below the red line at D).
  2. Price must drop no more than 10% (the move from D to E).
  3. Price rises and closes above the top of the triple top (this happens at F).
  4. Price fails to rise more than 10% above the highest peak in the triple top before reversing (the rise from the blue line to the peak at F).
  5. Price closes below the lowest valley in the triple top a second time (point G).

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Busted Triple Tops: Triple Busted

Picture of Met Life (MET) on the daily scale.

Triple busts are rare, but the word triple is misleading. I counted every pattern that had three or more busts.

The chart of Met Life is an example of a multiple bust triple top.

The triple top occurs at A, B, and C. This triple top is not wide, but it is tall. Price drops after peak C, but does not close below the bottom of the triple top until D. I show a red line connecting the lowest valley in the chart pattern as the benchmark.

Price rises up to E and closes above the highest peak in the chart pattern, busting the triple top for the first time. Then price reverses and closes below the bottom of the pattern, at F. That is the second bust. The chart pattern busts again at G when it closes above the ABC peaks.

For a triple (or more) busted triple top, look for the following:

  1. Price must confirm the triple top by closing below the bottom of the triple top (point D).
  2. Price must drop no more than 10%.
  3. Price rises and closes above the top of the triple top (point E).
  4. Price fails to rise at more than 10% above the highest peak in the triple top before reversing.
  5. Price closes below the lowest valley in the triple top a second time (point F).
  6. Price must drop no more than 10%.
  7. Price rises and closes above the top of the triple top again (point G).
  8. Additional down and up cycles may continue, busting the triple top.

Busted Triple Tops: Performance

Here's a few statistics from the book.

Busted Triple Tops: Trading

Picture of El Paso (EP) on the daily scale.

I show a chart of El Paso Corp (EP) on the daily scale. An awkward triple top appears at ABC. The three tops are not exactly on the same price level, but I chose this stock to show flaws, not perfection.

Point G is the lowest low between the three peaks. At D, price closes below G, confirming the chart pattern as a valid triple top. Price drops and makes a low 6% below the price at G before turning.

Price climbs and busts the triple top at E. In this example, however, price tumbles to F. Notice that F is below G, but it does not close below G. Thus, this triple top still qualifies as a single bust.

Price meanders upward, off the chart. In fact, a year later, in May 2011, the stock reached a high of 21.54 for a gain of 71% before it tumbled at least 20%.

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I chose this example to illustrate and emphasize how bumpy the road to riches can be. A stop placed a penny below G would have cashed you out for a loss instead of holding on to a big winner. Assuming an entry price a penny above the peak at A (12.59) and a stop a penny below the low at G (10.76), the loss would have been a massive 14.5%.

I tested the idea of buying at E and selling at various times in the future. Here is what I found.

Using a 50-day or 200-day simple moving average (SMA) as a confirmation tool did not help much. That is because price must climb to E, which means price is almost always above the moving average. Thus, a comparison with price at the buy time below or above the SMA showed too few samples to be fair. Nevertheless, here are the results.

I checked smaller moving averages (9 and 20) and also show their results. Samples below 30 should be considered suspect.

Then I used a price-SMA crossover technique. Buy when the pattern busts providing price is above the SMA, and sell the day after price closes below the SMA (or the reverse, buy when price is below the SMA and sell at the open the day after it closes above the SMA).

Gains were 3% (212 patterns) versus 2% (7 patterns) for above and below the 50-day SMA. For the 200-day SMA, the gains were 4% (184 patterns) versus 2% (22).

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Finally, I tested the gains over time. That means buying when price busted the triple top and selling sometime in the future.

Again, the results are unimpressive.

What this tells me is that a mechanical exit does not work well.

Busted Triple Tops: Trend Start, An Idea That Works

I was paging through examples of busted triple tops and noticed the position in the price trend. Those that busted near the start of the trend tended to outperform. Those that busted near the end of the trend were likely to lead to small gains or double/triple bust. So, I tested this idea and found it to be true. If the time from the trend start to the first peak in the triple top is less than 100 days (call it 3 months), then the busted triple top outperforms those longer than 100 days by 37% (92 samples) to 23% (115 samples).

Picture of the trend start leading to a triple top.

The glossary defines the trend start as: "Where the price trend begins, as measured from a major price turning point. To determine the trend start, look backward in time for the lowest low followed by a rise of at least 20%, or the highest high followed by a decline of at least 20%. Those turning points, the lowest low or highest high, represent where the trend starts. Whether to search for the lowest low or highest high, I use whichever drops below or rises above the bottom/top of the chart pattern first."

The chart shows how to make this work.

Begin with a busted triple top ABC. From the top of peak A, look to the left for a trend change -- price should either drop from a peak or rise from a valley by at least 20%. In this example, looking backward in time, the trend start began with a low price and the stock climbed at least 20% before that low. The 20% rise is not the distance from the trend start to peak A. Rather it is the rise from the trend start to D.

Price need not look like this V-shaped turn, from trending down to up leading to the start of the triple top. If you imagine everything to the left of peak A as inverted, the stock climbs by 20%, peaks, and then slides downward into the triple top. The peak is where the trend starts. In this drawing, the valley is where the trend starts.

Once you find the trend start, the time from that point to the first peak should be less than 100 days or about 3 months.

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-- Thomas Bulkowski

See Also

 

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My novels:  Bumper's Story Head's Law

Chart Patterns: After the Buy Getting Started in Chart Patterns, Second Edition Trading Basics Fundamental Analysis and Position Trading Swing and Day Trading Visual Guide to Chart Patterns Encyclopedia of Candlestick Charts Trading Classic Chart Patterns

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