A triple-bottom pattern displays three distinct minor lows at approximately the same price level. The triple-bottom is considered to be a variation of the head-and-shoulders bottom. Like that pattern, the triple-bottom is a reversal pattern.
The only thing that differentiates a triple-bottom from a head-and-shoulders bottom is the lack of a “head” between the two shoulders.
The triple-bottom illustrates a downtrend in the process of becoming an uptrend. It is, therefore, vital to the validity of the pattern that it commence with prices moving in a downtrend.
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.
Traders should note that the three lows tend to be sharp. When prices hit the first low, sellers become scarce, believing prices have fallen too low.
If a seller does agree to sell, buyers are quick to buy at a good price. Prices then bounce back up. The support level is established and the next two lows also are sharp and quick.
While the three lows should be sharp and distinct, the highs of the pattern can appear to be rounded. The pattern is complete when prices rise about the highest high in the formation.
The highest high is called the “confirmation point.”
Like the head-and-shoulders bottom, which it so closely resembles, the triple-bottom is considered to be a reliable pattern. But this pattern, the experts warn, can be easily confused with other similar patterns.
For example, if the center low is lower than the other two, the pattern may be a head-and-shoulders bottom. Also, if the three bottoms are successively higher or lower than one another, the pattern may instead be a triangle formation.
Because the pattern is easy to confuse, an investor should look for three sharp lows that are well-separated and 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.
If the pattern fails to move up and break through the confirmation point after reaching the third low, the pattern is not a valid triple-bottom.
Generally, trading volume in a triple-bottom tends to trend downward as the pattern forms. Volume tends to be lighter on each successive low. It then picks up as prices rise above the confirmation point and break into the new upward trend.
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