The Triple Tops pattern appears when there are three distinct minor Highs (1, 3, 5) at about the same price level. The security is testing the upper resistance level (horizontal line formed by (1, ­3,­ 5), but the price ultimately declines as buyers give up.

This type of formation potentially happens when investors can not break the resistance price. There is a distinct possibility that market participants will sell out, and the price can move down with big volumes (leading up to the breakout).

Trade Idea

If the price breaks out from the bottom pattern boundary, day traders and swing traders should trade with the DOWN trend. Consider selling the security short or buying a put option at a downward breakout price level. To identify an exit, calculate the target price by subtracting the pattern height from the breakout level. The pattern’s height is the highest high minus the lowest low, or the bottom resistance within the pattern. When trading, wait for the confirmation move, which is when the price falls below the breakout level.

To limit potential loss when price suddenly goes in the wrong direction, consider placing a stop order to buy back a short position or sell a put option at or above the breakout price.