There’s no question:
Triple bottom patterns are extremely powerful and should be included in your trading strategy.
They’re an amazing way to quickly identify potential trend reversals.
But, they’re hard to spot.
In this post, I’m going to show you exactly how to easily identify the triple bottom pattern in less than a minute.
Let’s dive in.
What Is A Triple Bottom Pattern?
A triple bottom pattern is a type of charting formation that is often used in technical analysis.
In a triple bottom pattern, the price of the asset will usually make a series of 3 similar lows, creating a seemingly powerful support level.
Most commonly found in a downtrend, but can also be found when the market is ranging, these reversal patterns can be very powerful.
But, it’s important to note that triple bottom patterns are not a guarantee that the market will reverse.
It’s important to identify when to enter a trade.
But, triple bottom patterns are one of the best signals that the market is in the process of reversing.
It’s important to note that, in the long run, the triple bottom pattern is more powerful than a double bottom.
In other words, it’s more likely that the price will reverse when it hits a triple bottom than a double bottom.
However, it’s also important to note that a double bottom is often more frequently generated than a triple bottom.
That’s because, in the long run, the price will often reverse when it hits a double bottom.
So, it’s important to identify the timing of when to enter the trade.
Since the timing of when to enter the trade can make a big difference in the success of the trade.
Side note, a lot of traders mistake these patterns as an inverse head and shoulders pattern, which is a simple mistake to make.
However, after completing this article, you will be able to correctly identify a triple bottom pattern
What Do Triple Bottom Patterns mean?
A triple bottom is often found towards the end of a downtrend.
But, it can also be used when the market is ranging.
As I have noted, a triple bottom is often used in a downtrend.
But, it can also be used when the market is ranging.
Triple bottom patterns are most often used when the market is falling.
A triple bottom pattern means that the sellers have tried to bring the price down the recent low and have failed the previous three times.
This is significant to know because:
- It shows that there are buyers in the market weakening the sellers pressure
- It highlights a key support level
- It highlights a key supply zone because every time the market has dipped to the lows, buyers have surged in to buy at the supply zone.
This gives you enough information to get ahead and look for the entry-level.
An Example of A Triple Bottom Pattern
Now you know the theory behind the formation of a triple bottom pattern, it’s time to look at what they look like and break them down.
Soon, you’ll be able to identify triple bottom patterns with ease.
Here is an example of a triple bottom pattern below:
As you can see, the chart pattern formed shows three downward moves all creating similar lows.
Each low created bounced back immediately.
These are big tell-tale signs that there is liquidity here and buyers are getting involved.
How to Trade A Triple Bottom Pattern – Step by Step.
Ok, now we are on to the good stuff.
How to trade a triple bottom formation.
It’s so easy and I know once you have identified one, you’ll be able to confidently trade it after this step by step guide.
Step 1: Identify A Triple Bottom Pattern
The first step is to identify the chart formation, this can be done easily by monitoring downward trends or trading ranges.
Check it out below:
As you can see that the 3 lows are generated in quick succession.
This can potentially indicate a switch from sellers to buyers, which is something we want to see.
Step 2: Identify Breakout Area
This bit is subjective, but most commonly you will find that these patterns also generate similar highs – especially if it’s drawn to previous market structure.
To identify a potential breakout area, we simply look at the previous two highs that were created shortly after the previous two lows (this would normally be a failed double bottom pattern).
Let’s have a look below:
Step 3: Identify Potential Breakout Move
With many chart patterns, you can safely predict the breakout move based on measuring the distance between the potential breakout area and the high/low of the pattern.
In this instance, we want to measure the difference between the potential breakout area and the low of the pattern:
As you can see in this example, the potential breakout move is around 25 pips.
Step 4: Place An Order Entry
Now we know the rough breakout area + how much it may move, we can do two things:
Set up an order when the market breaks out of our area.
Like so:
OR
Wait for the market to breakout and close ABOVE the breakout area we identified, THEN place an order entry above the breakout candlestick high.
Like so:
If you do the second method, you can set a price alert instead of monitoring the move – this frees up your time and when the price closes above this threshold, you know that a breakout candlestick has formed and then you can be ready to enter the market.
I prefer the second method personally. Take a look at the entry it provided above.
Step 5: Add A Stop Loss
To give this formation enough room to breathe, it is ideal to have a stop loss at either:
- 50% of the chart formations move; or
- At the chart formations lows
Either work, it depends on how much you are willing to risk before the pattern becomes invalid.
In the example above, the 50% rule was used giving a stop loss of 12.5 pips.
You can choose either, it would depend on your confidence too.
There is nothing wrong with having a large stop loss as you enter to avoid any knee jerk reactions to the market and then trailing the stop loss higher, thus locking in a profit.
Step 6: Add A Take Profit
You can place a take profit order at the area you highlighted in step 2.
This is the “expected” breakout move.
Naturally, not everything works like clockwork so you have to use logic and market structure to see if there is anything that could help you exit the trade in profit.
The Result:
In the example we entered using the best execution method:
In the example above, by using our method, we dodged a potential failure.
After the position was entered, there was a lot of resistance going higher up – which is backed up by the market structure to the left.
Eventually, it broke through and hit our take profit, and continued to rally higher.
As you can see in the above example the market moved quite accurately behind the original analysis.
Naturally, this is an example and it doesn’t mean everything will happen according to plan.
The Difference Between a Triple Top Pattern and a Triple Bottom Pattern
The difference between a triple top pattern and a triple bottom pattern can be easily understood.
It is simply the difference between an upward move in price and a downward move in price.
Triple tops show a great resistance level, whereas the triple bottoms show a great support level.
In the case of a triple top pattern, the trend is moving up and so when a triple top is formed it indicates a potential bearish reversal.
In other words, a triple top is a signal that the market is about to turn down.
A triple bottom pattern is an opposite.
It is a bullish signal that the market is going to reverse course.
Don’t worry, there will never be a case where you get both of these confused as they will happen in different trading environments.
Conclusion – How To Trade The Triple Bottom Pattern
Overall, triple bottom patterns are a powerful trading tool.
However, they are only one of the many types of trading patterns that can be used to trade the market.
Triple bottom patterns are a good tool to use when the market is falling and there is a lot of liquidity in the market.
Now that you’ve read all the great info in this article, you’ll have a better understanding of how to spot the triple bottom pattern.
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