A Triple Top pattern is a form of technical analysis that is used for helping to anticipate bullish market reversals. The triple bottom is primarily a bullish reversal pattern that occurs at the end of a downtrend. This candlestick pattern suggests an impending change in the trend direction after the sellers failed to break the support in three consecutive attempts.
What is the Triple Bottom pattern?
The Triple Bottom compromises three bottoms or troughs in a downtrend and marks the change in trend from bearish to bullish.
The formation of the Triple Bottom takes place when the price creates three troughs at an equal level. These troughs form a support level. The occurrence of the third trough confirms the Triple Bottom pattern.
To identify the pattern. Traders need to remember these points:
- There prevailing trend of the market should be downwards.
- The three trough or lows should be equal in distance and length.
Suppose the price of GBP/USD makes its first bottom at $1.2930, then the price rises to $1.2936, then drops back to $1.2930, rallies to the top again at $1.2938, declines again to $1.2931 before finally jumping to $1.2948. This is how the Triple Bottom pattern works.
The three troughs that create the Triple Bottom pattern resembles the Double Bottom pattern and the ascending and descending triangles.
How to use the Triple Bottom pattern?
Although the pattern is bullish, traders can take both buy and sell positions when trading the Triple Bottom pattern. Generally, traders may take buy positions after the three bottoms occur, and they are touching the support level. The peaks of the pattern should form a trendline to confirm the increase in price. Traders could then enter the trade after the third peak. The third peak is basically seen as a buy signal to some traders. Traders could also take sell positions after the second peak’s appearance, as there is a decline in price leading to the second bottom.
To confirm the accuracy of the Triple Bottom pattern, traders could look for the volume. If there is a high increase in the volume, it is an indication that the price may continue to move up. But, if the trading volume is lower than expected, traders might want to refrain from taking buy positons, as the price could go further down.
There are certain limitations when trading the Triple Bottom pattern. Sometimes the Double Bottoms can become the Triple Bottoms leading to confusion among traders. The head and shoulders pattern looks identical to the Triple Bottom pattern, so often, traders find it difficult to compare the two.
As with double tops and bottoms, the risk/reward is the Triple Bottom pattern’s biggest drawback. The stop-loss and profit target is based on the length of the pattern that should be equal. Some traders look to place the stop-loss and profit-targets above or below the Triple Bottom pattern.
Traders need to utilize other technical indicators along with the Triple Bottom to help filter trading signals.
Triple Bottom pattern trading strategy
As the name suggests, the triple bottom consists of the three consecutive lows printed at the same, or near the same level. For this chart pattern to occur and be effective the price action has to trade in a clear downtrend.
The triple bottom chart pattern is a rare, but extremely effective reversal pattern. It’s rare since the successive creation of three equal lows doesn’t happen quite often. Therefore, the double bottom is a more frequent chart pattern as it requires one low less to happen.
The Triple Bottom pattern can take several days or weeks to fully accomplish itself. Therefore, traders may need to locate the pattern on longer timeframes.
As outlined earlier, the triple bottom is a bullish reversal chart pattern. Hence, we are looking for clues when the market is ready to reverse its course. The main trading signal that we are looking for is a break of the neckline.
The pattern is considered bullish, but traders can also take short positions.
Triple Bottom pattern buy strategy
- Locate the pattern in a downtrend.
- Wait for the price bar to go bullish before entering.
- Enter the trade after the formation of the third peak.
- Place a stop-loss near the recent swing low from the entry point.
- Exit the trade on high.
Triple Top pattern sell strategy
- Locate the pattern in a downtrend.
- Wait for the price bar to go bearish before entering.
- Enter the trade after the formation of the second peak.
- Place a stop-loss at the recent high from the entry point.
- Exit the trade on the second bottom.
Triple Bottom pattern conclusion
Triple Top and Triple Bottom patterns are the types of reversal chart patterns. Triple Top is a bearish reversal chart pattern that leads to the trend change to the downside. Whereas Triple Bottom is a bullish chart reversal pattern that leads to the trend change to the upside.
The Triple Bottom Pattern can be used on your trading platform charts to help filter potential trading signals as part of an overall trading strategy. Although the pattern has a few limitations, still it’s a useful identifier of a potential bullish reversal.
The triple bottom chart pattern can sometimes be a reliable candlestick pattern but iI would not want to take action without additional conformation signals. Traders should look at indicators like relative strength index and if the currency pair has an oversold index, one may want to consider entering the trade.
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