The triple roof is a figure of technical analysis of the chartist type. It occurs when the price of a financial asset, after an upward trend, forms three consecutive highs at the same price level.
The triple ceiling occurs when the price fails to exceed the two previous highs, rejects them as resistance and a downtrend begins. Following the arguments and theories of chartist analysis, its analysis must be accompanied by stock market volume.
Its analysis is very similar to that of the double roof. Although it is true, that its analysis is complicated by having three minimums
Analysis of a triple roof
To analyze a triple ceiling we will follow the following scheme. First helping us with a graph and then dividing it into stages:
The analysis of a triple roof follows the following considerations divided into stages:
- First stage:The asset is in an uptrend and at point 1 it forms its first maximum. The volume behaves as usual but is reduced on the first descent. At this time we do not know which chartist figure will be formed.
- Second stage:The price of the asset rises again and point 1 acts as resistance . The volume increases slightly but is less than point 1. The second maximum or point 2 is formed. Again it decreases again in the fall.
- Third stage:The price prepares to rise for the third and last time until resistance. The volume increases again but continues to decrease with respect to 1 and 2. The volume begins to increase in the fall.
- Fourth stage:The price breaks the support with a considerable increase in volume. The support becomes resistance (what is known as a reverse or pullback) with a reduction in volume (red circle). This last stage confirms the pattern and is a good time to add a short position .
Example of a triple roof
Let’s see in a real example, how a triple ceiling would be analyzed:
This example adapts very well to the theoretical figure of the triple roof. It is not exactly the same but in practice it is something that the technical analyst has to take into account. In other words, the figures do not always respond to ideal graphic representations.
The stages that follow the figure of the example can be differentiated very simply. We can see the first stage (uptrend, formation of the first maximum and volume drop in the first fall), the second stage (formation of the second maximum and subsequent reduction in volume in the fall), the third stage (in which the price it does not reach the support but returns to the resistance with volume reduction) and the fourth stage (the price rests on the support and does not break it directly but finally breaks with force, the return or pullback does not reach the broken support such as indicated by the red circle [indicating that the started downtrend is even stronger.] Finally the goal is perfectly met.
Difference between triple roof and exhaustion rectangle
It is necessary, at this point, to differentiate between a triple ceiling and a stock rectangle of exhaustion. Recall that the exhaustion rectangle is a very similar figure that occurs at the end of bullish trends.
Although analytically they can receive the same treatment, in theory they are not the same. The fundamental difference is that a rectangle of exhaustion has more than three maximums. In the case of having two maximums, it would be a double ceiling and if it had three it would be a triple ceiling. The price targets and projections are usually similar. With which the difference at the level of trading is small.
In any case, as with other figures, the important thing is to understand that both figures are indicating a certain probability that the current uptrend will end and the market will begin a downtrend . Other figures that indicate trend exhaustion are the stock wedge, the shoulder head shoulder or the double roof.