The triple bottom reversal pattern has three roughly equal lows and indicates an opportunity to take a bullish position. Before the triple bottom occurs, the bears are usually in control of the market, forming a prolonged downtrend. The first bottom does not indicate anything out of the ordinary. Still, the second and third bottoms show a change in direction where buyers (bulls) may push the price action higher after the price breaks through the resistance.
As with other reversal patterns, there should be an existing trend – a current downward trend in this case. Similar to the triple top pattern, the three bottoms should be nearly equal in size and have sufficient space between them. There should be a clear indication of a drop in volume leading into the pattern and an increase in volume on the advance and at the resistance break. Finally, the price should break through the resistance level, which is at the highest point of the highs present between the bottoms. The price may test the new support level it has found. The price target is calculated as the value from the resistance break to the base points plus the resistance break.
A limitation of the triple bottom is that it does offer a reasonable risk and reward equation. Traders should consider a triple bottom as a neutral pattern until they can confirm a breakout. Like the triple top reversal pattern, a triple bottom takes typically three to six months to form.
Taking Advantage of the Triple Bottom Pattern
once the stock chart has two bottoms, it will result in an uptrend until the stock reaches the upper support level again. Here, the pressure will be induced again on traders to sell the security, and as a result, the price will return to the previous low where it’ll hit resistance resulting in the third bottom.
Heading into the third downtrend, buyers and sellers converge, but the lower price increases demand, and the buyers pushed the stock higher, forming the final uptrend. Traders watch closely as the price moves higher, but the triple bottom pattern can’t be confirmed until the price action trades over the upper support level.
Once it does, the price target can be measured by subtracting the distance between the lows and the upper support level added to the breakout point. For example, if the low is $20 in the upper support level is $25, you can expect the price action to continue for $5 above the breakout point, so a trader would want to sell once the stock price reached $30.
Attributes
- Pattern type: Reversal
- Indication: Bullish
- Breakout confirmation: The confirmation for this pattern is a close above the upper trendline with above-average volume.
- Measuring: Take the distance between the first high and the low of the head and then add it to the upper resistance level on the breakout.
- Volume: The volume tends to be low, heading into the formation and increase on the breakout.
Conclusion
The triple bottom pattern is a reliable tool for technical traders, allowing them to find the reversal within the trendline, but also calculate how far that trend will go once it’s established. Traders should treat the triple bottom pattern as a neutral pattern until the breakout is confirmed. Once the upper resistance level is broken with a sharp increase in volume, the momentum will likely carry the price action higher.
To learn more about stock chart patterns and how to take advantage of technical analysis to the fullest, be sure to check out our entire library of predictable chart patterns. These include comprehensive descriptions and images so that you can recognize important chart patterns scenarios and become a better trader.
