Triple Bottom Pattern in Technical Analysis
By Stelian Olar, Updated on: Dec 28 2023.
We've all been there - watching a stock drop lower and lower, making new swing lows and wondering when the heck it will finally hit rock bottom. Just when you think you've seen the worst, that stubborn stock falls even further.
Frustrating, right?
But what if I told you those cringe-worthy triple bottom drops just might signal a prime trading opportunity?
See, while the triple bottom pattern got its name from the stock bouncing on the same support level three times, its true magic comes after the price action changes its direction from bearish to bullish.
Counterintuitive as it seems, that long-awaited breakout often marks a major bullish reversal.
Intrigued and eager to upgrade your chart patterns reading skills?
Then keep scrolling to unlock the secrets of this powerful triple bottom stock pattern.
We'll explore:
- What is a triple bottom pattern?
- How to spot emerging triple bottom stock versus false breakouts.
- Answer is triple bottom pattern bullish or bearish.
- You'll get the inside scoop on when to enter and exit trades based on the triple bottom chart to optimize profits.
- How it differs from other chart patterns like the double bottom.
- We'll even throw in some real chart examples so you can search for triple bottom stocks in the wild.
Think your trading strategy has enough fire power?
Well this unusual formation could take it to the next level faster than you'd expect. Let's crack the code on those pesky triple bottom drops once and for all!
What Is a Triple Bottom Chart Pattern
In essence, a triple bottom chart pattern marks a key support level that gets tested not once, not twice, but three separate times. Each time the stock drops down and tags that support, eager bulls rush in to push the price right back up. It's like an epic battle between stubborn bulls and determined bears playing tug of war.
But what turns the tripple bottom pattern from ho-hum to hot is when the bulls finally gain the upper hand, after bouncing off support for a third time, the stock breaks through resistance levels in the other direction for a trend reversal.
Thus, the triple bottom pattern signals a transition from a downtrend to an uptrend.
Now in technical analysis, the opposite of this is called a triple top pattern. And you guessed it - that signals a swing from an uptrend to a downtrend after bulls shove the price down through resistance three times.
So in a way, triple top and triple bottom chart patterns work as mirrored counterparts.
But for now, let's get back to mastering our new friend, the stocks triple bottom!
Up next, we’ll unlock clues for spotting this bullish reversal chart pattern emerging in real-time. We'll explore how it differs from other chart patterns like the double bottom. Understanding key concepts like support levels, trend reversals, and technical analysis will help you identify stocks forming triple bottoms.
Is the Triple Bottom Good Pattern?
In short - yes, the triple bottom tends to produce a powerful bullish reversal when traded properly.
See, each time the stock tests support, more and more eager bulls pile in anticipating that eventual breakout. Their early buying provides the fuel for the stock to bounce upwards. Meanwhile, frustrated bearish sellers exhaust themselves during those repeated failed attempts to break support.
So when the stock finally conquers that resistance barrier, both new bullish entrants and converted former bears help propel share prices higher at an accelerated pace. Plus this reversal chart pattern catches many short sellers off guard, forcing them to scramble and cover positions as the stock turns against them.
Triple Bottom vs Quadruple Bottom
Now compare this to patterns like the head and shoulders top or quadruple bottom.
Even though those signal trend reversals too, the triple bottom strikes the ideal balance between building energy and overextending. The quadruple bottom pattern risks burning out momentum with too many support tests and the double bottom pattern sometimes lack enough confirmation before reversing.
Clearly the triple bottom stock chart demonstrates powerful potential...if you know how to swing trade it!
What is the Success Rate of the Triple Bottom Pattern?
According to Thomas Bulkowski, an internationally known author and expert in chart patterns, the triple bottom forex pattern fares quite well based on performance data.
Specifically, out of 39 chart formations, the triple bottom pattern success rate ranks 12th best with the following key stats:
- Break even failure rate of just 13%
- Average rise of 46%
- Throwback rate of 65%
- Percentage meeting price target at 74%
With numbers drawn from a robust sample of over 2,500 chart pattern occurrences, we can have confidence in these figures.
The bottom line is that while the triple bottom line pattern does not boost the highest success rate, it still produces positive outcomes roughly three-quarters of the time and when it does pay off, the average gain ranks among the best.
What is an Example of a Triple Bottom Pattern?
Alright, time to ground this concept in life trading examples. Let's explore a few actual charts featuring triple bottom patterns in action.
Example 1: eBay in Early 2020
During the initial pandemic stock selloff, eBay shares formed a textbook triple bottom reversal after retesting the $26 support level three times, the stock broke out above $42 resistance in late April on heavy volume. Over the next 10 months, eBay's price movement ultimately reached over $64 for a 150%+ gain.
Example #2: Alphabet’s Triple Bottom
The 4th largest company in the world, Alphabet also showcased a high-probability triple bottom setup in early 2018. Shares bounced off support around $50 three times during December and March. The eventual breakout topped out near $65 in July 2019, meeting the typical 1.5-2x triple bottom pattern target from the formation.
How to Trade Triple Bottom Patterns
Alright, time for the fun stuff - capitalizing on this pattern with a solid trading game plan!
Scan for the Setup
First, keep this formation on your nightly stock screening checklist following these 3 key things:
- A clear support level tested exactly 3 times
- Creating 3 distinct price lows at roughly equal levels
- On increasing volume on the 3rd test
Plan the Entry
Second, prepare to enter a long position when price breaks above resistance with increased volume. Consider buy triggers like:
- A 3% breakout above the peak of the 3 high points
- Especially if heavy volume comes in right at the breakout point
Ride the Momentum
Finally, once in the trade, aim to run this pattern for solid gains and a price target that is equal to the depth of the triple bottom. Useful tips:
- Move up your trailing stop to lock in profits after the breakout occurs
- Target taking partial profits at key milestones
- Let top performers ride towards a double or triple of the risk
Master this reliable triple bottom setup and these stubborn reversals could soon vault your portfolio to new heights!
Common Mistakes in Triple Bottom Pattern Trading
Alright, we've covered a ton about triple bottom basics, statistics, and real examples. Now let's switch gears to discuss some key mistakes traders often make when attempting to profit from this formation. Being aware of these common errors can help you avoid similar downfalls.
Mistake #1 - Missing the Breakout Entry
It might sound basic, but ensuring you actually enter on the breakout remains vital. Entering prematurely leads getting stopped out right before the big move or entering too late risks missing much of the initial surge. Plot clear trigger levels in advance to optimize timing.
Mistake #2 - Sitting Through Throwbacks
Remember that sharp pullbacks, or throwbacks, happen about 65% of the time after breakouts. Rookie traders often panic and cut winners short, wrongly thinking the pattern failed. Anticipate these moves and avoid unnecessary stops.
Mistake #3 - Lack of Risk Management
Emotions like greed and fear easily distort trading decisions. Set stop losses on all trades, period. Taking improper risks is among the fastest ways to sabotage an otherwise valid pattern setup.
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