Traders usually evaluate price movements that are routinely generated on the chart when performing technical analysis. With over 50 chart patterns—including uncommon ones and ones that appear on practically every time frame—analyzing patterns and price formations is the most popular indication utilized in technical analysis.
In trading, “Triple bottom” and “Triple top” are two common patterns. Despite the fact that these patterns are identical, a “Triple bottom” is more common on price charts because market downtrends generally conclude with this pattern.
A Triple Bottom: What Is It?
At the lows of a downward trend, a technical analysis pattern known as a “triple bottom” chart pattern emerges, signaling a shift in the power dynamics from sellers to buyers.
A “Triple bottom” is a fundamental pattern that can show up on any asset’s chart over any period of time. But like the majority of price patterns, it usually works best when seen on 4-hour and longer time frames.
After a lengthy downward trend, this chart pattern shows three consecutive price lows that emerge at the same level, creating a short-term channel with a strong support line. The direction of the channel can be sideways, upward, or downward. The three bottoms of this pattern must all have the same pip value in order to be recognized on the chart.
What Causes the Formation of a Triple Bottom Pattern?
Three primary steps are involved in the production of the “Triple bottom” pattern:
- First, the price chart indicates a protracted downward trend in which bears are controlling the price movement. The price movement begins to produce a pullback at the lows during this bearish mood. After the first bottom or low is formed, the pattern starts to take shape. Over 10% of the prior decline is covered by the correction as it climbs after the bottom is formed.
- Second, the upward corrective comes to an end when the pattern sets its initial peak. The pattern creates the first wave after the first low and high are established. Following that, the price drops to the initial low and makes an effort to sink further lower. The formation of a second bottom will confirm a “Double bottom” pattern if the price does not fall below this low and instead reverses. The price should reverse once more at the first high, setting the second high. The pattern moves into the third stage if each of these conditions is met.
- The price falls after reaching the second high, indicating that a “Triple bottom” pattern is forming. The price creates a third low during the third stage, running parallel to the earlier ones. A subsequent upward reversal in quotes follows. A breakout wave, which usually signifies the start of the pattern’s expansion, is the price increase that forms following the third bottom.
After the price hits the first and second highs, the pattern can indicate a bullish reversal.
Finding the Triple Bottom Pattern: A Guide
It is required to wait until the first two stages of the pattern’s construction are complete in order to recognize it accurately on the price chart. A “Triple bottom” pattern can only be verified if the first and second lows and highs have been determined. Even if all three lows have fully formed, the pattern can still not function. The pattern can change into any direction of a normal channel.
Numerous designs resemble a “Triple bottom” in both appearance and operation. One notable instance is the conversion of a “Double bottom” into a “Triple bottom.” The “Inverse head and shoulders” chart pattern is another comparable pattern that may be identified by its central bottom being lower than the other two. You can differentiate a “Triple bottom” from other patterns on the chart by looking for the following indicators:
- The three lows ought to be roughly equal.
- The three highs and lows ought to be at parallel levels.
- A sideways movement cannot result in the formation of the pattern; it always follows a strong decline.
How to Use the Triple Bottom Pattern in Trading
Following a few basic guidelines will help you automate trading with the “Triple bottom” pattern and ensure that you apply it appropriately.
- Correctly identifying the pattern requires removing all identical patterns.
- There is already a 50% likelihood that a potential pattern will be completed if it forms following a decline.
- Await the formation of all three lows before preparing to submit a pending purchase order.
- Put a pending purchase stop order in place if the price has risen by half from the previous low.
- A buy stop order’s level is situated slightly above the second high. After the price has tested the resistance level, a long trade may occasionally be opened. It is not advised to do so, though, as you might not enter the transaction at all or miss more than half of it.
- A purchase stop and H1, which stands for any pattern low in pip values, are added to define the take-profit level.
- At the third low level, a stop-loss order is placed.
- You can move the stop loss to the breakeven point once the price has surpassed 50% of the trade’s upside potential.
Conclusion
In conclusion, one of the most common trading strategies for people with moderate capital is pattern-based trading. Patterns feature straightforward entry and exit levels and are easy to identify.
One of the easiest to learn is the “Triple bottom” chart pattern, which, if mastered, can help you create a potent trading technique. Use the following advice to increase your financial market trading profits:Only patterns that show up on time frames from H1 and higher should be used. The H4 time frame has the best chance of starting a reversal pattern.Don’t wait to execute a take profit in its entirety. You can lock in the profit if the price has shifted more than 80% in the desired direction.
