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, but the second and third bottoms indicate a change in direction where buyers (bulls) may overtake after the price breaks through the resistance.
As with other reversal patterns, there should be an existing trend – an existing 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 and an increase in volume on the advance and at the resistance break. Finally, the price should break through the resistance level, which is 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 bottom points plus the resistance break.
A limitation of the triple bottom is that it does not offer a good 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 normally takes three to six months to form. To learn more about the triple bottom reversal pattern click here.