John Lansing

Triple-Top Signal Points to Downtrend

by John Lansing   08/28/08

A triple-top is considered to be a variation of the head-and-shoulders top. Often the only thing that differentiates a triple-top from a head-and-shoulders top is the fact that the three peaks that compose the triple-top are at about the same levels. The head-and-shoulders pattern has a higher peak -- or the "head" -- between the two "shoulders."

Most experts believe that the distinction between the two patterns is largely academic because both formations indicate the same thing: "reversal" patterns of a stock's upward trend. The triple-top marks an uptrend that is in the process of changing into a downtrend.

What does a triple-top look like?

The triple-top pattern is made of three sharp peaks, all at the same level. A triple-top occurs when stock prices are rising.

First, prices climb to a resistance level, retreat, return to the resistance level, retreat a second time, and, finally, return to the same resistance level for a third time before falling. In a classic triple-top, the decline that follows the third peak indicates the beginning of a stock's downtrend.