The Triple Bottom pattern, and how to use it
The triple bottom pattern is a bullish chart pattern that is formed by three distinct troughs, with the price falling to a support level and then rising back up each time. This pattern is created when the price of an asset falls to a support level, rises back up, and then falls again to the same support level two more times before eventually breaking through the resistance level and rising. The triple bottom pattern is a reversal pattern, which means that it is typically seen as a bullish sign and indicates that the asset’s price is likely to reverse its downward trend and start rising.
To form a triple bottom pattern, the asset’s price will typically fall to a support level, rise back up, and then fall again to the same support level two more times before breaking through the resistance level and rising. The pattern is typically completed when the price breaks through the resistance level, which is a trendline that connects the highs between the three troughs.
One of the key characteristics of the triple bottom pattern is that the trading volume tends to increase as the pattern progresses. This is because the price is making a significant move and there is more activity from traders. However, once the price does break through the resistance level, trading volume may decrease as the price starts to rise and traders become less active.
In order to trade the triple bottom pattern, traders should look for the following characteristics:
- Three distinct troughs: This is the key feature of the triple bottom pattern, as the asset’s price falls to a support level, rises back up, and then falls again to the same support level two more times before breaking through the resistance level and rising.
- A resistance level: This is a trendline that connects the highs between the three troughs.
- Increasing trading volume: As the pattern progresses and the price approaches the resistance level, trading volume should increase.
- A breakout: Once the price breaks through the resistance level, traders should enter into long positions and expect the price to continue rising.
It is important to note that the triple bottom pattern is a bullish pattern, but it is not a guarantee that the asset’s price will rise. As with any trading strategy, it is important to use risk management techniques and to always be aware of the potential for losses.
One way to trade the triple bottom pattern is to set a buy order just above the resistance level, as this is where the price is likely to break through and start rising. Traders can also set a stop loss order just below the lowest of the three troughs, in case the price does not break through the resistance and instead falls back down.
Another way to trade the triple bottom pattern is to wait for confirmation that the price has indeed broken through the resistance level before entering into a long position. This can be done by looking for additional bullish signals, such as a bullish crossover on a moving average or a bullish candlestick pattern.
It is important to keep in mind that the triple bottom pattern can take some time to form, as the price needs to fall to the support level, rise back up, and then fall again to the same support level two more times before breaking through the resistance level and rising. Traders should be patient and wait for the pattern to complete before entering into a trade.
