Triple bottom is a chart pattern with three bottoms which are very close in price. There are certain requirements to consider a chart pattern as a triple bottom:
Firstly, price lows are close to each other;
Secondly, there is an equal distance in time between lows;
And finally, volume decreases on each successive bottom.
The triple bottom has a close resemblance with the head and shoulders bottom. The only difference between triple bottom and head and shoulders bottom is the absence of a head between the two shoulders. In order not to confuse this pattern, an investor should seek three sharp lows which are well separated and are not part of a larger congestion pattern. In addition, between the lows, the highs should be fairly rounded in shape, although it is not absolutely necessary to the validity of the pattern. The pattern is not considered a valid triple bottom if the pattern fails to move up and break through the confirmation point after reaching the third low.
Triple Bottom Formation
Though triple bottom formations work in exactly the same way as double bottom they are not as common as double bottom. These formations are reversal patterns with bullish sentiments. Triple bottoms are identified by three consecutive lows located at the same or similar level and two highs between them. The pattern is characterized by support and resistance lines which connect the lows and the tops respectively. The support is considered to be especially strong as the price reverses three times from the level where investors believe the asset is underpriced. There exist different types of triple bottom which can be classified according to three criteria:
According to the shape:
Bottom can be V-shaped or U-shaped;
According to the level of the second bottom:
The second bottom may be higher, equal or slightly lower than the first bottom;
According to the level of the third bottom:
The third bottom may be higher, equal or lower than the second bottom.
So, the triple bottom pattern is composed of three sharp lows, all at about the same price level. Prices fall to a support level, rise, fall to that support level again, rise, and finally fall, returning to the support level for a third time before beginning an upward climb. In the classic triple bottom, the upward movement in the price marks the beginning of an uptrend.
Triple Bottom Interpretation
Investors should take into account that the three lows usually are sharp. When prices hit the first low, the number of sellers decreases, as they believe that prices have fallen too low. When a seller makes a decision to sell, buyers try to buy at a good price. If the price climbs above the pattern’s tops or resistance level (plus possible deviation), the formation is then completed and can be interpreted as change in direction of the trend upwards serving as a buy signal. If the three lows are sharp and distinct, the highs of the pattern generally become rounded. The pattern is considered to be complete when prices rise about the highest high or confirmation point in the formation.
The price depending on the triple bottom pattern formation is generally believed to rise at least to its target level which is calculated in the following way:
T = R + H,
T – target level;
R – resistance level (recent local highs);
H – pattern’s height (distance between support and resistance levels).