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Reversal Chart Patterns

Trading stocks education - Trading tactics & examples

Triple Bottom Reversal

Triple Bottom formation is the mirror image of the Triple Top. After an extended decline to new lows a stock puts-in a bottom on massive volume and a moderate rally ensues. After several sessions (sometimes weeks) the stock drifts back to test the first bottom and once again buyers push the stock higher. This process is repeated a third time before buyers finally overwhelm sellers and the stock moves significantly higher.

The technical target for a triple bottom formation is derived by adding the difference between bottom #1and the reaction high to the new breakout level. After the third bottom has been created, the new breakout level is the peak achieved between bottoms #2 and #3. No double bottom formation is complete until the stock rallies through this level.


Triple Bottom

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As the triple bottom develops, it can start to resemble a number of patterns. Before the third low forms, the pattern may look like a double bottom. Three equal lows can also be found in a descending triangle or rectangle.

  • Prior Trend: A downtrend or long trading range should be in place for Triple Bottom. Sometimes there will be a definitive downtrend to reverse. Other times the downtrend will fade away after many months of sideways trading.
  • Three Lows: All three lows should be reasonably equivalent, well spaced and mark significant turning points.
  • Volume: As the triple bottom develops, overall volume levels usually decline. Volume sometimes increases near the lows. After the third low, an expansion of volume on the advance and at the resistance breakout greatly reinforces the soundness of the pattern.
  • Resistance Break: As with many other reversal patterns, the triple bottom is not complete until a resistance breakout. The highest point of the formation, which would be the highest of the intermittent highs, marks resistance.
  • Resistance Turns Support: Broken resistance becomes potential support, and there is sometimes a test of this newfound support level with the first correction. Because the triple bottom is a long-term pattern, the test of newfound support may occur many months later.
  • Price Target: The distance from the resistance breakout to lows can be measured and added to the resistance break for a price target. The longer the pattern develops, the more significant is the ultimate breakout. Triple bottoms that are 6 or more months in duration represent major bottoms and a price target is less likely to be effective.

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