Why Using Triple Bottom Pattern Is Important

Being a “bull” means relying mainly on technical analysis and a variety of chart patterns. They ensure a deeper market analysis as well as the ability to look at the situation from a different angle. While some patterns make it possible to identify the real asset price or potential reversal, others help to spot the best buyer entry position. This is actually what a triple bottom pattern necessary for.

The bottom pattern provides a visual interpretation of bulls (buyers) taking control over the price action from bears (sellers). It generally introduces the formation of three equal bouncing lows between the support and resistance with a chance to identify the best market entry point and establish a strong bullish position.

Tips to read a triple bottom pattern

Before using a particular pattern, you need to clearly understand what it actually tries to tell you. Otherwise, you will not be able to read it. As a rule, bears are controlling the market during a prolonged downtrend. So, the main idea of the triple bottom is to follow that downtrend and let bulls keep control over the price action.

As stated earlier, the pattern forms three major bottoms that can be interpreted in the following way:

  • 1st Bottom - a natural price movement that can be considered normal.
  • 2nd Bottom – comes as an inadequate move providing a bullish sign for buyers to be prepared, as the possible reversal is about to occur.
  • 3rd Bottom – means that bears are about to capitulate, as the price is likely to break through the resistance levels.

Simple rules to qualify triple bottom

The triple bottom pattern is pretty easy to read. For this reason, it might be a good option for beginner traders. All you need is to learn several baseline rules that identify this particular pattern. So, the main rules are as follows:

  1. If you cannot see the downtrend before the pattern, it is not a triple bottom.
  2. Each of the three bottoms is supposed to have the same price (some slight moves are possible. However, it should still be close to other bottom values).
  3. Considering the price breakthrough, traders are likely to observe increased bullish volume while bears losing their strength and about to capitulate.

Triple bottom pattern trading guide

Now, let's see how to trade with a triple bottom. The first thing you need to do is to calculate the price target. As a rule, it represents the distance between the break out point and the bottoms.

Example: let’s say, the price bottom is at $10 along with the breakout point added at $12. In this case, your price target is $14 (12 - 10 = 2 + 12 = 14). To manage risks when using the triple bottom. A good idea is to place a stop-loss below the pattern or breakout points.

You need to note that using triple bottom, as a stand-alone patter is hardly the best idea. You will need other indicators to confirm singles generated by the pattern. Some traders use it together with RSI and other tools that help to confirm they are using exactly a triple bottom rather than other patterns used by bears (for example, descending triangle).

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Triple bottom vs Triple top

Judging by the pattern name, the triple top opposite to the bottom pattern. Unlike the one we discuss today, a triple top mainly refers to bearish trading strategies showing when bulls (buyers) are losing their strength. It happens when the price breaks through the resistance levels at least three times.

When using any chart pattern, traders often need to rely on probability. On the other hand, the triple bottom has proved to be an easy pattern to recognize and confirm, especially when used with other technical indicators. 

On the other hand, it comes with certain limitations in terms of profit mainly due to stop-loss located just below the breakout point. If you want to benefit from ramped up profits, you may try to set the trailing stop-loss inside the pattern. However, this strategy may end up with higher losses.

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.