The triple bottom is a powerful bullish reversal pattern that forms after a prolonged downtrend. When price tests the same support level three times and fails to break lower, it signals that sellers are exhausted and buyers are ready to take control. In this guide, we will cover how to identify and trade the triple bottom pattern effectively.
What is a Triple Bottom Pattern?
A triple bottom pattern forms when price creates three distinct lows at approximately the same price level, with two moderate peaks (reactions) in between. The pattern is confirmed when price breaks above the resistance level formed by the peaks.
Key insight: The triple bottom represents three failed attempts by sellers to push price lower. Each failure at support demonstrates increasing buying interest and sets up a potential trend reversal to the upside.
How to Identify a Triple Bottom
To properly identify a triple bottom pattern, look for these characteristics:
- Prior downtrend: The pattern must form after a significant decline
- Three lows: Three distinct bottoms at roughly the same level
- Two peaks: Two reaction rallies between the bottoms
- Neckline: Horizontal resistance connecting the two peaks
- Time spacing: The bottoms should be relatively evenly spaced
- Volume: Volume typically decreases on each successive bottom
Pattern Psychology
Understanding the psychology helps you trade the pattern with confidence:
First Bottom
After a downtrend, price finds support and bounces. This could just be a normal retracement, so traders are not yet convinced of a reversal.
Second Bottom
Price returns to test the support level and holds again. This gets the attention of traders who start watching for a potential double bottom.
Third Bottom
When price returns to support a third time and holds, it confirms strong buying interest at that level. Sellers are clearly unable to push price lower.
Breakout
When price breaks above the neckline, it triggers buying from pattern traders and stop losses from shorts, creating momentum for the reversal.
How to Trade the Triple Bottom
Entry Strategy 1: Breakout Entry
Enter long when price breaks above the neckline with volume confirmation.
Breakout Entry Setup
- Wait for a close above the neckline
- Confirm with increased volume on breakout
- Enter on the breakout candle close or next open
- Stop loss below the most recent bottom
Entry Strategy 2: Pullback Entry
Wait for the breakout, then enter on a pullback to the neckline (now support).
Pullback Entry Setup
- Confirm the breakout above the neckline
- Wait for price to pull back to the neckline area
- Enter when price bounces off the neckline as support
- Tighter stop loss just below the neckline
Entry Strategy 3: Third Bottom Entry
Aggressive traders may enter at the third bottom with a tight stop below support.
Third Bottom Entry Setup
- Identify two previous bottoms at the same level
- Enter long when price touches support for the third time
- Look for bullish candlestick confirmation
- Stop loss just below the support level
Note: This is a higher risk entry as the pattern is not yet confirmed.
Price Target Calculation
Calculate your price target using the measured move technique:
- Measure the height from the bottoms to the neckline
- Add this distance to the neckline breakout level
Target Calculation Example
- Triple bottom level: $40.00
- Neckline: $48.00
- Pattern height: $8.00
- Price target: $48 + $8 = $56.00
Complete Trading Example
Triple Bottom Trade on Stock XYZ
Stock XYZ forms a triple bottom over 3 months:
- Bottom 1: $25.00 in week 1
- Peak 1: $30.00 in week 3
- Bottom 2: $25.20 in week 5
- Peak 2: $29.80 in week 7
- Bottom 3: $25.10 in week 9
- Neckline: $30.00
Trade execution:
- Breakout occurs at $30.25 with volume
- Entry: $30.50
- Stop loss: $24.50 (below the bottoms)
- Target: $35.00 (pattern height added to neckline)
Risk: $6.00 | Reward: $4.50 | R:R: 0.75:1
Alternative with pullback entry at $30.00: Risk $5.50, Reward $5.00, R:R 0.91:1
Volume Confirmation
Volume provides important confirmation for triple bottom patterns:
- First bottom: Usually has the highest volume
- Second and third bottoms: Volume typically decreases
- On breakout: Volume should spike significantly
- Post-breakout: Sustained volume supports the reversal
Common Mistakes to Avoid
- Unequal bottoms: The three lows should be at similar price levels
- Entering before confirmation: Wait for the neckline breakout
- Ignoring volume: Always confirm with volume analysis
- No prior downtrend: The pattern needs context to be a reversal
- Stop loss too tight: Allow room for normal price fluctuation
Pro tip: Triple bottoms are more reliable when they form at historically significant support levels or round number prices. The more context confirming support, the stronger the pattern.
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Summary
The triple bottom is a reliable bullish reversal pattern that forms when sellers fail three times to push price below support. Look for three bottoms at similar levels with decreasing volume, wait for a breakout above the neckline with volume confirmation, and use the measured move technique for your price target. With proper risk management, this pattern can offer excellent reversal trading opportunities.
Want to learn the bearish counterpart? Check out our guide on the triple top pattern or explore both patterns together.