Triple Top and Triple Bottom

The Triple Top and the Triple Bottom are price action based technical analysis patterns. The Triple Top is a trend reversal chart pattern that forms at the end of an uptrend. This formation is characterized by three consecutive peaks that happen at approximately the same price. The three peaks are separated by two valleys 1). This formation is a lot rarer than the double top pattern.

Triple Top Entry

The formation is confirmed when price breaks below the lowest point marked by the two valleys. The move to the downside suggests that the signal indicated by price topping out on three separate occasions was a real shift in market trend. The second top usually occurs on lower volume. The third top has even lower volume then the second. Like we mentioned previously in our Double Top and Double Bottom entry, because there is no centralized forex exchange, currency traders can’t use volume data directly. Proxy volume stats can include using fx futures volume figures. Here’s a triple top on the EUR/USD Daily chart.

This formation transpired over the course of several months in 2012. The first top was at 1.5062. The second time price peaked at little lower at 1.5047. On the third retest to the area, the single currency broke slightly above both tops and rallied as high as 1.5143. But the Euro was unable to hold onto these gains and fall back soon after. Two weeks after the failed brakeout attempt the common currency broke below the ‘’neckline’’ indicating further losses ahead.

Triple Top Takeprofit and Stoploss

A common sense approach for stop loss placement is to put the stop in a place where if breached, would invalidate the initial reason for taking the trade. A Triple Top formation would be invalidated by prices rallying about the highest peak. Thus, on our EUR/USD example above, the stop would go above 1.5143. With an entry at 1.4626 and a stop at 1.5144 (high + 1 pip spread), the total risk on our short would be 518 pips.

Extrapolating this initial risk downward, we marked out potential take profit areas at 1R, 2R, 3R, 4R and 5R. The R here stands for our initial risk. Because our total risk on the trade was 518 pips, the first take profit level is placed 518 pips below the entry at 1.4108. The move down took a few months to fully develop but by the end of it the EUR/USD had sunk to as low as 1.1875 in on June 7th, 2010.

Triple Bottom Entry

The Triple Bottom is a trend reversal pattern that forms at the end of a downtrend. The formation is characterized by three consecutive troughs that happen at approximately the same price. The three troughs are separated by two peaks 2). The Triple Bottom formation is confirmed when price breaks above the highest point marked by the two peaks. The move up suggests that the signal indicated by price topping out on three separate occasions was a real trend change. The second trough occurs on lower volume. The third trough usually has even lower volume then the second. The following chart shows a triple bottom on the EUR/USD Daily chart.

The Euro spiked to a low of 1.2744 on April 4th 2013. Two months later the currency pair retested this low but managed to only get within 50 pips of it at 1.2795. The third attempt was also unsuccessful. Europe’s common currency moved down to 1.2754, 10 pips away from the low marked by trough number one. After the 3rd unsuccessful attempt, the EUR/USD finally moved up.

Triple Bottom Takeprofit and Stoploss

A month after the trough number 3, the currency pair was testing the 1.3418 neckline. It took the Euro one month more to break above this area. With an entry at 1.3419 (1.3418 + 1 pip spread), the total risk on our trade was 675 pips. The first take profit area (1R) still hasn’t been reached by the time this entry was published (February 2014). After rallying to as high as 1.3891, Europe’s single currency fell back and is currently trading not far from the 1.3418 trendline at 1.3484.

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