In crypto trading, traders use the triple top pattern to identify reversal of current trends. The reversal is always the most probable, and potentially profitable ones.
The triple top mostly occurs when the price of a crypto asset finds resistance at a historical level and fails to break it. Usually, the price of the crypto asset in question needs to have failed up to three times before a triple top forms.
This article will explain triple top as a technical indicator. Also, it will cover other aspects like how crypto traders make profits using the indicator.
What is a Triple Top?
When a triple top forms, the trade setup consist of three distinct heights (or peaks). These peaks have almost equal levels (approximately). The peaks described are distinct price levels where the asset price met with repeated resistance. Additionally, the asset failed to break the resistance at any of the three trials.
The selling pressure at the resistance point is usually quite high, and the competition around it is directional. And the buy-sell pressure at the point prevents further increase in asset price momentarily. The triple top pattern indicates that the buyers are losing momentum and the sellers are gaining control of the market.
How Does a Triple Top Work?
A triple top simply means that buyers have tried to take over the market and failed. When this repeats itself three times, especially in a row, a triple top will materialise. The implication is that, sellers are going to take control of the market and the asset price is anticipated to decline. The first peak of a triple top is the first attempt to drive the price upwards, but selling pressure prevailed.
The second peak represents another attempt by the buyers to push the price higher, but they are once again met with selling pressure at the resistance level. The third peak represents the final attempt by the buyers to break through the resistance level, but they fail again.
When the pattern is completely formed, traders will expect that the sellers are taking control for some time. A potential price decline is highly probable at this point. Experienced traders can make informed trading decisions based on this information at hand.
How Can Traders Use Triple Top?
Crypto traders use the triple top in a number of ways. A popular application of the setup is to identify probable price decline. Some other times, they use it to determine inbound trend reversal. When the pattern is complete, it indicates that the buyers are losing momentum, and the sellers are gaining control of the market.
Another application is for making profits from short positions, or closing long positions. To use the triple top pattern, traders should first identify the resistance level. Once price fails to break a resistance thrice, and the resistance level is known, traders should watch the price fall below the next support level.
The support level is where the asset price bounces back after every fall from the peaks. Breaking the next support level is usually a good signal to enter short positions, or exit long positions.
How Traders use the Triple top Pattern to Enter Short Positions
Entering a short trade or position is quite definitive when a triple top is formed. Once the triple top pattern is identified, traders can wait for the price to break below the support level, which is the point at which the price has bounced back up from after each peak.
Once the price breaks below the support level, traders can enter short positions, which means they are betting that the price will continue to decrease. Traders can place a stop-loss order above the resistance level to limit their potential losses if the price were to rise again and break through the resistance level. In order to be on a safer side, traders should not use the triple top in isolation.
Always confirm entry and exit with combination indicators. This can help to reduce the risk of false signals and increase the likelihood of a successful trade.
Experienced crypto traders make the triple top an important technical tool for easy profitable trading. The probability of a price decline or trend reversal after a triple top is quite clear. It is a chart pattern that consists of three peaks at approximately the same level, representing the price of an asset reaching a resistance level three times but failing to break through it.
This information is useful in many trading situations, especially when there’s long-held resistance. It gives a quite clear indication of a possible move for traders. In conjunction with effective technical tools, crypto traders can rake in enough profits to put their head above water.
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