The triple bottom pattern is a classic chart pattern that reverses the trend of a market upwards.
It consists of three bottoms/ lows that are formed due to price struggling to break a level of support. These lows should be relatively equal and spaced out.
Each time the price went to this support level, it rejected to form a few highs which act as the upper boundary of the range. By connecting these highs, we have the neckline of this pattern.
What Is a Triple Bottom Pattern?
After a long bull/ bear run, sometimes you could say the market needs to catch a breath. Price becomes confined in a given region (range).
The upper limit of this range is defined by a resistance level. Contrarily the lower limit of this range is defined by support.
As seen in the image below, it compromises three equal lows. When the highs of the range are connected, the resulting horizontal line is referred to as the neckline.
How Does The Triple Bottom Form?
The triple bottom pattern is born during a period of consolidation. In the forex market, movements occur in trends or sometimes, ranges.
A given market is trending when it has a defined direction. In the case of an uptrend, higher highs and lows are mad. For downtrends, lower lows and lower highs are made.
In a ranging market, price moves sideways because there are no real winners between bulls and bears. Hence, indecision takes place so a bias to either side of the market is invalid.
Price finds a level of support that bounces off thrice. Thereafter, a breakout to the upside finally occurs and as a result, higher prices are achieved.
Note: a retest of the range may or may not happen.
What Does The Triple Bottom Pattern Tell You?
The triple bottom forms after long bearish trends. The price hits support and rises to form a high.
Then, the price drops again to form a low close to the previous bottom before declining again. This happens one last time completing the pattern.
During this sequence, why has the price not been able to make a new lower low? This is because bears are not in control of the market’s narrative any longer.
Triple Bottom Pattern Rules
How To Draw a Neckline
To draw a neckline for his pattern, the highs of the range are connected. The neckline is the most important feature of the triple bottom pattern.
One of the signals a trader looking to long would be the triple bottom. Before entering a position, a neckline break is required. Once this cross happens, it validates the triple bottom pattern.
Patience has to be exercised with every trading pattern in general. There are times when it seems like the triple bottom pattern is forming but it does not get completed.
Some traders open positions immediately the price breaks the neckline. Alternatively, a retest of the trading range can be anticipated instead.
Trading The Triple Bottom Pattern
To trade the triple bottom pattern, the rules above are applied. Firstly, the neckline of the pattern is drawn.
Secondly, a break of the neckline is waited on because it validates the pattern. Afterward, a stop loss is placed beneath the third low.
The triple bottom is in fact a bearish signal. It is a chart pattern that slowly forms at the end of a downtrending.
The market consolidated to gain momentum for a new trend. Eventually, a new trend emerges and the triple bottom’s neckline is formed
After the triple bottom is formed, an aggressive move to the upside occurs. This price action results in the start of a new trend; a bullish trend.
The triple bottom reverses the trend of any given market from a bearish to a bullish narrative. In opposition to that, the triple top appears at the end of an uptrend.
This pattern forms due to the price struggling to break resistance. Furthermore, the presence of bullish momentum soon diminishes so a bearish narrative is born
Summary: How To Trade The Triple Bottom Pattern
The triple bottom pattern forms at the of a downtrend reversing the market. It looks similar to an inverse head and shoulders pattern.
To add, they both same function but unlike the triple bottom pattern, all three lows are not equal.
After a triple bottom pattern is completed, the price breaks through the support, and the bearish trend continues. Due to that reason, a neckline break is required to verify the validity of the pattern.
Furthermore, from a risk management perspective, this pattern is flawed. The risk to reward is rather low which is not ideal.