What is a Point & Figure Triple Top Breakout?
The P&F Triple Top breakout is a buy signal. The pattern involves a rising column of Xs, exceeding the two prior columns of Xs, across the same level. The pattern activates with the upside break, a box fill above the preceding two X columns. Simply, a successful penetration of horizontal resistance, on the third attempt, a clean breakout.
The pattern follows similar form to the Double Top but with the addition of a side extension. A Triple Top is distinguishable from the Double Top by a further O and X column. Expanded trading activity of the Triple Top results in a more powerful breakout than the Double Top. Less frequent than the ubiquitous Double Top.
A Triple Top breakout follows a period of consolidation, often several weeks in duration.
Reliability of the buy signal is greater when the up trend of a stock, or index, has been underway for multiple months.
Psychology of a Triple Top pattern
The P&F Triple Top signals termination of a range-bound market. Pulling decisively out of a frustrating sideways range naturally piques trader emotion. Short sellers rush to cover on fears of losses. Simultaneously, investors fearful of paying a ballooning price, with the upside reassertion, buy the market. Collectively, that flurry of buying activity, results in the persistent extension higher often seen following activation of the Triple Top pattern.
The Spread Triple Top variant
The Point & Figure Triple Top may undergo a further sideways extension, adding two more columns to its width, resulting in a Spread Triple Top. The high of the additional X column or columns, are shy by at least one box of the two pillar X columns that form the resistance ceiling of the pattern.
The extra width of the Spread Triple Top typically results in a stronger, and more powerful, upside move following activation, when compared to the narrower Triple Top.
How to Trade a Point & Figure Triple Top?
Following activation of a Triple Top, further analysis of the chart is necessary.
- The primary price trend for the stock or index must be up. Trading should be above a bullish trendline and not beneath a falling Bearish Trendline.
- Triple Tops should not be traded in a bear market, as they often morph into Bull Traps.
- Look for other buy signals preceding the pattern, that will add confidence in the uptrend resumption.
- A bullish relative P&F chart is necessary. The relative chart should be trending up on a medium to long-term basis. The only allowance for a weak relative chart would be when it has found a long-term relative horizontal support level.
- Sentiment, as always, is important. If the pattern formed during a period of bad news-flow, the upside breakout should be more powerful. Short sellers on the negative news, perhaps an earnings miss or similar, will need to cover. Shorts closing out fuel the breakout.
Entry is best sought a week or two following pattern confirmation. Following a breakout, the price typically needs to catch its breath. Retreating, perhaps into the prior range, not a problem, providing no sell signal prints. That drop back is the entry window.
The Tripletop set-up is less likely to succeed when the general market is range-bound since they can quickly turn into a Bull Trap. Should that occur, expect trading to rapidly drop all the way back to the floor of the pattern.
During a bear market they are likely to fail, leading to a Bull Trap. Hence, in that climate, avoid.
Where to place a stop-loss?
Initially, one box beneath the prior column of Os. Any higher than that could take a long position out on a natural pull-back or evolution of the pattern into a Bullish Catapult.
Following pattern activation, as the trend climbs, the stop could be raised to the box directly beneath the next completed column of Os (pull-back). A pull-back of Os would be considered complete when a 3 box reversal prints back to the upside.
How to determine a price target?
A horizontal count could be used to calculate an upside objective, harnessing the Triple Top's decent width.
Spread Triple Top Examples
Post consolidation breakout
Activision Blizzard generated a Spread Triple Top breakout in December 2019. The move followed a consolidation across the neckline of a yearlong base.
Pattern breakout to a record high
Texas Instruments produced a Spread Triple Top in October 2019. Simultaneously, the price pushed out to a record high. The breakout resumed the strong 2019 uptrend. Note the relative ratio also held a buy signal, evident from the data at the bottom left of the chart.
Consecutive Spread Triple Tops
Just as a rising trend may see consecutive Double Tops, Spread Triple Tops can repeat. The Point & Figure chart for First Financial Bankshares completed a Spread Triple Top in 2017, followed by a persistent rally. That move then consolidated, with a second Spread Triple Top developing. As of September 2019, that second pattern is one box away from activation.
Preceding bullish pattern
Monolithic Power Systems printed a Spread Triple Top in August 2018, preceded by a Bear Trap just above a Bullish Trendline. Confidence is gained when additional bullish evidence precedes this Triple Top variant.
Triple Top Explained by Example
Concurrent Price and Relative Triple Tops
November 4th 2019 saw Eaton Corp printed simultaneous Triple Tops on its price and relative charts. The former pattern resulted in a record high, clearing a stubborn two year ceiling.
Pattern confluence with a moving average
Flowers Foods, in February 2019, illustrates how a Triple Top buy signal, coupled to other positive signs, adds conviction. Here the buy signal also broke up through the 30-week moving average, resistance in the preceding weeks. Additionally, the PnF Triple Top followed a Bear Trap, a particularly brutal one at that, given the trap occurring across three preceding O columns.
Signal of primary trend reassertion
The SPDR Consumer Discretionary fund confirmed a P&F Triple Top in June 2018. The pattern signalled a reassertion of the primary uptrend, with the price hitting new all-time highs. A further Triple Top breakout appeared at the end of 2017.
Relative ratio buy signal
Triple Top buy signals are also identifiable on P&F relative ratio charts. The ratio here plots Iridium Communications against the S&P 500. In May 2018 a Triple Top breakout pulled the ratio out of a six year base. Outperformance followed.