What is a Triple Top?A Triple Top is a chart pattern that can help you to get out or short a stock when it is at its top. It occurs when a give stock has tried and failed to break through resistance 3 times. Then the stock actually breaks support. In a Triple Top we would expect the stock to keep heading down.Let us look at an example. This stock started out in an uptrend. Then it started staying between $10 and $17. It hit $17 three times each time it did it came down to its support. Finally after its third failed attempt at breaking resistance it comes down and breaks through resistance. This gives us a strong sell signal. The reason that the triple top works is that it indicates a point in where the bulls are no longer able to go higher and in fact get beaten by the bears.
In the first top you see a up trending stock fail to break to a new high and get pushed back down. It then turns around and attempts to push through that high only to drop again once it reaches the old high. When the stock tries to go up again it doesn’t break the same old resistance level and instead comes falling down. This indicates that the buying pressure in the stock is not strong enough to take it to a new level and in fact the selling pressure in the market is bringing the stock down. Now that we know what a Triple Top is we can look at how to trade a Triple Top. When we see a Triple Top BREAK SUPPORT it gives us a signal that the stock will most likely go down. We can either use this signal to get out of our long positions or to get into our short positions, or both. A good trader would have shorted this stock once it broke out and followed it down by setting stops. Professional traders will develop their own system and they will typically have some sort of money management plan in place when trading.
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