A Triple Bottom is a chart pattern that consists of three equal lows followed by a break above resistance.
A Triple Bottom Tell You
The triple bottom chart pattern typically follows a prolonged downtrend where bears are in control of the market. While the first bottom could simply be normal price movement, the second bottom is indicative of the bulls gaining momentum and preparing for a possible reversal. The third bottom indicates that there's strong support in place and bears may capitulate when the price breaks through resistance levels.
There are a few rules that are commonly used to qualify triple bottoms:
- There should be an existing downtrend in place before the pattern occurs.
- The three lows should be roughly equal in price and spaced out from each other. While the price doesn't have to be exactly equal, it should be reasonably close to the same price, such that a trendline is horizontal.
- The volume should drop throughout the pattern in a sign that bears are losing strength, while bullish volume should increase as the price breaks through the final resistance.
How to Trade a Triple Bottom
The price target for a double bottom reversal is typically the distance between the lows and the breakout point added to the breakout point. For example, if the low is $10.00 and the breakout is at $12.00, the price target would be (12 - 10 = 2 + 12 = 14) $14.00. Stop-loss points are usually placed just below the breakout point and/or below the triple bottom lows.
The Triple Bottom pattern is similar in appearance to the Inverse Head and Shoulders pattern, in that it is represented by a series of three high highs and lows.
The difference is that all three highs of the Triple Bottom will be around the same height, while in the Inverse Head and Shoulders pattern, the second lowe is lower than the first and third high.
The appearance of the Triple Bottom indicates the existence of a downtrend, which is currently in the process of reversing into an uptrend.
Selling pressure is declining so the downtrend is running out of steam.
As with a Triple Top, it is generally thought that the longer a particular trend takes to fully develop, the stronger the significant change in price once a breakdown occurs.
Triple Tops and Bottoms are considered one of the slowest types of chart patterns to fully mature.
While the Triple Bottom is developing, it can look like other chart patterns.
For example, before the third high form, the pattern may look like a Double Bottom.
Three equal highs can also be found in a Descending Triangle or Rectangle.
With a Triple Bottom, the support level can be identified by drawing a line at the base level of the high, which forms a “Neckline“.
You can choose to enter into a long position once the price level rises through this resistance level.
The Triple Top should also be treated as a neutral chart pattern until a breakout occurs.