Triple Bottom Pattern is a familiar chart pattern among traders. This bullish reversal pattern is quite popular and well-known for its accuracy in indicating a shift in momentum. It can also help traders achieve high profits if used correctly. Before using this pattern in trading, it is advisable to understand what the Triple Bottom Pattern is and how to identify it.
What is Triple Bottom Pattern?
Triple Bottom Pattern is a bullish reversal chart pattern. As a major reversal pattern, it usually forms over a period of 3 to 6 months. Triple Bottom Pattern has similarities with other reversal patterns such as the double bottom pattern and the head and shoulders pattern. It is important to note that, like other reversal patterns, there must be an existing or preceding trend. In this case, the existing trend is a downtrend.
This pattern forms three lows below the resistance/neckline level. The first low is formed after a strong downtrend and then retraces back to the neckline. The pattern is completed when the price moves back to the neckline after forming the third low. When the price breaks through the neckline or resistance level after forming three lows, the bullish trend reversal can be confirmed.
Identifying Triple Bottom Pattern on a Chart
Identifying or reading this pattern on a chart can be quite easy as long as you focus on basic things such as always focusing on the end of the downtrend and focusing on patterns that have three lowest points at the same level. The way to confirm this pattern is when the price breaks above the neckline, which acts as a resistance level.
There are several conditions that must be met for a pattern to be confirmed as a Triple Bottom Pattern, namely:
There must be an existing downtrend before the pattern occurs.
Three lowest positions (lows) must be at the same level.
Volume will decrease throughout the pattern as a sign that the downtrend is starting to weaken, and the price will enter a bullish trend when it breaks the last resistance.
For the price target, a Triple Bottom that lasts for 6 months or more represents the main bottom, and the price target tends to be ineffective. Therefore, the distance from the breakout resistance to the lowest position can be measured and added to the breakout resistance for the price target.
Trading Using Triple Bottom Pattern
There are several rules to keep in mind when using Triple Bottom Pattern in trading. First, because the triple bottom is formed at the end of a downtrend, the previous trend must be a downtrend. Second, record all observations, especially if there are 3 rounding bottoms visible. Third, long positions can only be entered when the price breaks the resistance level or neckline.
In addition, just like other technical indicators to confirm reversals and help find the best price where stop-loss orders must be placed, alternative technical indicators that can be combined with Triple Bottom Pattern are required. Two indicators that are highly suitable to combine with Triple Bottom Pattern are MACD (Moving Average Convergence Divergence) and Fibonacci retracement levels.
The first is MACD (Moving Average Convergence Divergence). By combining this indicator with Triple Bottom Pattern, the crossing at the right level where the price breaks the resistance line can be found more easily. The second is Fibonacci retracement levels. This indicator can be useful as the main support and resistance area.
Conclusion
Triple Bottom Pattern has the main strength of accurately predicting trend reversals. Moreover, the pattern can also calculate how far the trend will go after it forms. However, this pattern is not a frequently occurring pattern. To increase potential profits, the use of other technical indicators such as MACD (Moving Average Convergence Divergence) and Fibonacci retracement levels is recommended. In addition, understanding how to identify this pattern should also be considered to maximize your profits.