Triple bottom is a bullish pattern with a WV shape. Three bottoms will succeed, reflecting an important support. This will mark a reversal. See the triple bottom shown below, the area of support allows the prices to bounce back three times. The neckline of this pattern is formed by the highest peak of the two bullish peaks. An initial bounce will then occur and the price will go back on the support. The bulk of the three bottoms is usually the same (as indicated below), however it can happen that the first bottom may be lower than the next two. This configuration strengthens the validity of this pattern since it reflects a tension of sellers.
If the second dip is lower than the other two, it can be a reverse head and shoulders pattern. A second rebound will take place, probably on the same level as the initial bounce. However, if the neckline is broken at this point, it can be a double bottom. In some cases, afterward we know what type of pattern we were facing. A return on the support must be accomplished. The third bottom may be lower than the first two thus reinforcing the chances of reversals (tension of sellers). This will be the third rebound which leads to the break out of the neckline and reinforce the bullish reversal.
When the neckline becomes broken, it might appear that the price takes support on it (the line will become a support, called a pullback); then the price will take up its bullish movement. The target price is decided by the gap between the support and the neckline.
Another example of a triple bottom with a tension of sellers (bottoms are less and less low) is indicated here.
Here are some statistics about the triple bottom:
– In 66% of cases, there is an upward exit.
– In 73% of cases, the target of the pattern will be reached once the neckline is broken.
– In 70% of cases, a pullback will occur.
– In 96% of cases, there is a pursuit of the movement once the neckline is broken.
In case of pullback, the upward movement is not as important once the target of the pattern is reached.
If the support is endlessly tested prior to a rebound (flat bottom), then the increase following the breaking of the neckline will be more important.
The more the three bottoms are close, more of the percentage of success of the pattern will be high.
The more movements between the neckline and support are straight, the more the pattern is efficient.
The more the bearish movement that precedes the formation of the triple bottom is big, the more the upward movement at the breakout of the neckline will be strong.
The pattern will be more efficient if the third bottom is not deeper than the two others.