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What is Triple Bottom Pattern?
The Triple Bottom Pattern is a bullish reversal chart pattern that forms after a downtrend and consists of three consecutive bottoms and a resistance neckline. After the breakout, a trend reversal often occurs and a bullish trend begins. In terms of structure, the Triple Bottom Pattern consists of three failed attempts to break the support line at the same price level and then a breakout above the resistance neckline. When this happens, the breakout point indicates the direction of the bullish trend where a buy position is taken. Generally, this technical analysis pattern has a pattern shape similar to other reversal patterns such as the double bottom pattern and the head and shoulders pattern. Obviously, it also works in conjunction with the triple top pattern, which moves in the other direction and is therefore a bearish reversal chart pattern.
Candlestick Pattern: Complete Explanation, Single, Dual, to Triple
How to Read Triple Bottom Pattern
In forex trading, a triple bottom formation occurs when the price of a currency pair fails to break below a certain resistance level and bounces back three times in a row. Due to its obvious pattern – it is quite easy to identify a triple bottom pattern. Simply put, the pattern appears at the end of a downtrend and has three lows at the same level. Confirmation of the pattern occurs when price breaks above the neckline, which acts as a resistance level. When this happens, sellers lose control and buyers take over. Looking at the EUR/JPY 30-minute chart below, we can see how a triple bottom pattern forms in real life.
Following the downtrend, EUR/JPY price entered into a consolidation mode with three attempts to break the support line. After the price bounced back and broke above the neckline, the bullish trend was confirmed and the pair continued to trade higher. With the above in mind, here are the steps you need to take to implement the triple bottom pattern trading strategy:
- Identify triple bottoms on the support line that appear after a clear bearish downtrend.
- Draw a resistance line around the highest point of all price changes.
- Wait for the price to break above the neckline resistance
- Draw Fibonacci retracement levels or add MACD indicator
- Enter a long buy position with a stop-loss order at or slightly below the neckline.
Triple Top Pattern: How to Trade, How to Read, and Its Forming Aspects
How to Trade with Triple Bottom Pattern
As mentioned earlier, the triple bottom pattern is a bullish trend reversal indicator. This means, there is no confusion on how to trade this pattern and basically, a trader will be looking for the right entry point to buy the asset. This is done when a breakout occurs and the asset breaks above the neckline. To use this chart pattern effectively, it is also important to combine other technical indicators to confirm the reversal and to help you find the best price at which you should place your stop-loss order. With that in mind, we will show you two useful technical indicators to combine with the triple bottom pattern – MACD (Moving Average Convergence Divergence) levels and Fibonacci retracements.
also read :
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Double Bottom Pattern: Characteristics, Terms, How to Read, and Examples |
Moving Average Convergence Divergence (MACD) and Triple Bottom Chart Patterns
MACD is a popular momentum indicator used to spot trend reversals. Basically, when you add the MACD indicator to a price chart with a triple bottom pattern, you are looking for a crossover at the exact level where price breaks through the resistance neckline. Using the same chart from the example above, we added the MACD to get another signal for a trend reversal. As you can see, the MACD crossover occurred when price reached the resistance line and therefore, helped us confirm the trend reversal.
Double Bottom Pattern: Characteristics, Terms, How to Read, and Examples
Fibonacci Retracement Levels and Triple Bottom Chart Patterns
Well, personally, Fibonacci retracement levels are one of my favorite technical indicators, no matter what pattern you decide to use. Why? Because Fibonacci retracement levels are so popular and are often used by many traders. Therefore, these Fibonacci price levels become key support and resistance areas. Let's take an example to see how the integration of Fibonacci retracement levels works with the triple bottom pattern.
As you can see on the EUR/JPY 30-minute chart above, the price bounced back after three failed attempts to break the resistance line. The beauty here is that the breakout occurred right at the 23.6% Fibonacci level, which indeed confirmed the breakout. In this case, everything is easier – stop loss can be placed at the 0% Fibonacci level, and take profit can be placed at the 50% level or even higher.
What is Double Bottom Pattern?
The double bottom pattern requires two lows forming near a similar horizontal price level and signals a potential bullish reversal signal. A measured price rally will occur between the two lows indicating some support at the lows. The double bottom chart pattern is found at the end of a downtrend and resembles the letter “W” (see chart below). Price falls to a new low and then rallies slightly higher before returning to a new low. Unable to push price to a lower low to continue the downtrend, sellers give up and price bounces sharply off this area. Bullish confirmation is determined by a break of a key price level located at the high of the ‘lower’ resistance level (neckline).
Similarly, the double top pattern counters the double bottom pattern which signals a bearish reversal. Instead of the confirmation indicated by a breakout at a key resistance level, the double top occurs at a key support low between two highs. The double bottom and double top patterns are powerful technical tools used by traders in the major financial markets including forex.
How to Read Double Bottom Pattern
In general, it is quite simple to identify a double bottom pattern on a trading chart. This pattern can be identified when the price retests the support line and rises back above the neckline. As a tip, you can usually identify the pattern as a “W” formation. As you can see in the USD/CAD daily chart below, the pair has a first and second low and a neckline. After breaking above the neckline, the forex pair continued to trade higher and a bullish trend has begun.
Below, we have outlined the steps you need to follow to identify and trade the double bottom chart pattern in the forex market:
- Find the first low retest and draw support lines at the first and second low price levels.
- Try to identify the first and second peaks and draw a neckline around these levels.
- Wait for the first candle to complete after the price breaks above the neckline.
- Enter a long buy position with a tight stop-loss order at or below the neckline.
How to Trade with Double Bottom Pattern
Like many other chart patterns and technical indicators, there are many ways in which the double bottom pattern forms on the price chart. You can find this pattern in a trending market when a long downtrend ends or in a ranging market where the price consolidates and fails to break below the support line. However, in all cases, when traders identify a double bottom formation, they wait for the asset price to break above the neckline and only then take a long position. To help you see how the double bottom pattern looks in reality, we will show you two examples.Example 1 – Double Bottom Chart Pattern at the End of a Downtrend
The double bottom chart pattern is certainly most effective when it appears at the end of a downtrend. When this happens, price has the potential to reverse and move higher. In the example below, we can see a clear W formation at the end of a bearish trend. As soon as the pair broke above the neckline, USD/CAD moved higher and momentum has shifted.
Example 2 – Double Bottom Chart Pattern in a Revolving Market
Although the double bottom pattern is usually seen at the end of a downtrend, it can also be identified in a ranging market. As shown in the chart below, price has a first and second low and a neckline. Then, once price rises above the neckline, momentum shifts and market sentiment turns bullish.
Keep in mind that the two bottom chart patterns are not always perfectly illustrated (as you can see in the example above) but the general idea is two bottoms near a clear support line and neckline. This Triple Bottom Pattern can often be found when trading. You can apply the strategy explained above and use a good and correct trading plan. If you want to learn other strategies, tips, or tricks, you can follow various GIC Academies or learning through the GIC Journal. If you are still a beginner and want to trade, you can try to register for trading at GIC with a small capital first. Trading at GIC can be done with a capital starting from IDR 150,000!
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