What is the triple bottom chart pattern and how do you trade with it?

What is the triple bottom trading pattern?

The triple bottom trading pattern is a measure of the amount of control buyers have over the market price in relation to the sellers. The pattern appears on a price chart as three equal low levels followed by an uptrend that breaks through the resistance level after the third dip.

The triple bottom trading chart pattern starts forming after a downward trend. The pattern is confirmed with a breakout above the neckline and suggests a bullish uptrend to follow.

The first bottom occurs when the market rebounds from a low in a downtrend. The next bottom forms when the price falls and then rebounds off the same level (previous low). This is followed by the third bottom which comes about when the market maintains its strong support until the price chart breaks above the resistance level – confirming the almost-evenly spaced triple bottom trading pattern.

This type of chart pattern is used in technical analysis to identify a possible change in trend direction from down to up. Technical analysis is mainly focused on using historical market price movement in attempting to predict future performance. Remember that past performance doesn’t guarantee future results.

How to trade using the triple bottom pattern

To trade using the triple bottom chart, you’ll open your position when the breakout occurs above the neckline, which is after the market price has hit the third bottom. You can go long using the triple bottom pattern by buying your chosen asset when you expect its value to rise, with the hopes of selling it once it’s increased in price.

In order to confirm if a reversal pattern has occurred, you can use other technical analysis tools such as the moving average convergence divergence (MACD) and the fibonacci retracement levels.¹

Moving average convergence divergence (MACD)

The MACD is a technical indicator that tracks the momentum of an asset, providing much insight on trading signals that are valuable in identifying opportunities to open or close your position.

A useful MACD strategy that you can use as a guide on what position to take before the market changes direction is the histogram reversals. When trading the triple bottom pattern, it’s important to know when the direction of the market is changing and its momentum.

For instance, an increase in the height of the histogram indicates a rapid momentum in the market price. On the other hand, when the height of the histogram lowers, it indicates that the market is slowing down, meaning it is adopting a reversal pattern.

Fibonacci retracement levels

Fibonacci retracement levels are important indicators of the support and resistance when trading using the triple bottom pattern since they’ll enable you to measure partial reversals. Fibonacci retracements, or pullbacks, will help you to identify the percentage at which the market you’re trading will reverse against its current trend.

This technical analysis tool uses percentages and horizontal lines on the price chart to identify the support and resistance areas that can guide you as to when to open or close your position. It’ll further assist you on when to apply stops and limits to your open trades.

Using Fibonacci retracements will provide a refence point where the market starts to pull back, enabling you to study and recognise the size of each retracement in the price movement. Shallow retracements are indicative of fast-moving markets, while deep ones show the price movement slowing down or reversing.

How to start trading using the triple bottom pattern

1. Choose your preferred market
2. Create an account or practise on a demo
3. Conduct your technical analysis
4. Set your trade size and manage your risk
5. Open your position in your chosen market and monitor your trade

CFD trading

You can use CFD trading to open your position on the triple bottom chart patterns when trading with us. CFD trading exchanges the difference in price from the point at which the contract is opened to when it’s closed.

Trading CFDs will increase your access to the rising and falling price movements of the underlying assets. You can use CFDs, which are leveraged products, to get exposure to the underlying assets you’re trading as a fraction of the full value.

Trading with leverage will amplify your profits if the market moves in your favour, and result in losses that exceed your initial outlay if it turns against you. Remember to use our risk management tools.

An example of a trade using the triple bottom pattern

Using the triple bottom pattern is more suitable for traders who are trend followers and prefer to take a long (‘buy’) position. This means, you’d closely monitor the share price performance trends of the underlying asset of your choice with the aim to open a long position once it hits breakout above the resistance level.

For instance, if you were trading EUR/USD and observe the third bottom being followed by a breakout level, confirming the triple bottom pattern, you’d take a long position at this uptrend. You’d then short (‘sell’) before the pattern takes a downward trend.

Depending on your trade, you might decide to place a stop-loss order to automatically close your position when the underlying asset reaches a level that’s less favourable to the current price.

Common mistakes in triple bottom pattern trading

Common mistakes made when trading using the triple bottom pattern is placing a trade long after a breakout level has occurred, which is when most traders decide to pull back.

A pullback is a temporary pause in the overall market trend. You may see this as a chance to buy assets with an overall uptrend, but if the market turns against you and takes a sharp downtrend, it’ll lead to significant losses on your open position.

If you were to place the stop-loss order for your open position out of range, you might have a high chance to win or lose.²

Traders often place a stop-loss order outside of the triple bottom chart, but to improve the risk-reward ratio, it might be better to place this inside the pattern. The downward side comes when the uptrend breaks before the third dip, turning this into a Double Bottom pattern.²

Triple bottom trading pattern summed up

• The triple bottom trading pattern appears as a chart that has three equal low bottoms followed by uptrend that that breaks through the resistance level confirming the breakout level
• You’ll open your position when the breakout occurs above the neckline, which is after the market price has hit the third bottom
• Using the triple bottom pattern is more suitable for traders who are trend followers and prefer to take a long (‘buy’) position
• With us, you can trade using the triple bottom chart pattern through CFD trading. This will enable you to get exposure to the price movement of the underlying assets without taking direct ownership
• Common mistakes made when trading using the triple bottom pattern is placing a trade long after a breakout level has occurred, which is when most traders decide to pullback

Footnotes
¹ HowToTrade, 2022
² InvestoPower, 2022