Triple Bottom Pattern: A Three-Low Reversal Signal

Key Takeaways

• A triple bottom is three roughly equal lows that hold, followed by a break above resistance.
• The pattern only completes when price closes above the highest peak between the lows.
• Many traders buy the third low rather than waiting for the resistance break.
• The upside target equals the pattern height added to the resistance break.

What It Is

A triple bottom is a major reversal pattern that appears after a downtrend. Price falls to a support level, bounces, falls to the same level a second time, bounces again, then tests the level a third time and holds. When price finally rises above the resistance above those lows, the pattern confirms.

According to StockCharts ChartSchool, triple bottoms usually form over a three to six month period. All three lows should be reasonably equal and well spaced. Bulkowski's pattern research and other backtests place the success rate of confirmed triple bottoms in roughly the 74% to 79% range, with about 70% throwing back to the breakout price.

The Intuition

A downtrend continues while each bounce gets sold. A triple bottom shows three separate attempts to break below a floor, all defended by buyers. Each successful defense adds confidence that demand is sitting at that level.

The resistance line above the lows is the trigger. As long as price stays below it, the downtrend could still resume. The ability to hold support is encouraging, but demand has not won until resistance breaks. Once price closes above the highest peak between the lows, sellers who kept pressing the floor have lost, and short covering can accelerate the advance.

How the Triple Bottom Pattern Works

The pattern has five elements: a prior downtrend, three roughly equal lows, two peaks between the lows, and a resistance break. The resistance level is the highest of the peaks between the lows.

Confirmation comes on a close above that resistance, ideally with rising volume. Volume usually declines as the pattern develops, then expands on the breakout. The price target uses the height of the pattern:

target = resistance break + (resistance level - lowest low)

So if the lows sit near $40 and resistance is at $48, the height is $8 and the upside target is $56. As with most reversal patterns, targets are less reliable for very long formations.

Worked Example

A stock falls to $40, bounces to $47, drops to $41, bounces to $48, then drops to $40 again and holds. The three lows near $40 mark support. The highest peak between them, at $48, marks resistance.

Price then rallies and closes at $49, above the $48 resistance, on heavy volume. The pattern confirms. Height equals resistance of $48 minus the lowest low of $40, or $8. The target is 48 plus 8, or $56. A throwback toward the broken resistance is common, occurring in roughly 70% of cases, and it does not invalidate the pattern.

Common Mistakes

1. Buying the third low. Three touches of support is not a completed triple bottom. Until price closes above resistance, the downtrend can still resume. Buying the third low often means catching a falling market.

2. Accepting unequal lows. The three lows should be close in price. Lows that drift lower suggest the downtrend is still intact rather than reversing.

3. Ignoring volume on the breakout. A breakout on weak volume is more likely to fail. The pattern is stronger when volume expands as resistance gives way.

4. Panicking on the throwback. About 70% of triple bottoms throw back toward the breakout price. Selling during a normal throwback gives up a valid trade too early.

5. Confusing it with a range. Three touches of a floor can simply be a sideways range that later breaks downward. The pattern is only bullish once resistance actually breaks.

Frequently Asked Questions

What is a triple bottom pattern in simple terms? It is a chart shape where price hits the same low three times and holds, then rises above the highs between those lows. It often signals the end of a downtrend.

How does a triple bottom pattern affect investment decisions? Traders read a confirmed triple bottom as a sign that selling pressure has failed. Many wait for a close above resistance before buying, then use the pattern height to set a target, as in the $40 lows to $56 example.

What is a real-world example of a triple bottom? A stock holds $40 three times, with peaks at $47 and $48, then closes above $48 on heavy volume. The break confirms the pattern and projects a move toward $56.

How can investors avoid false triple bottom signals? Wait for the close above the highest peak rather than buying the third low. Require the three lows to be roughly equal and look for expanding volume on the breakout.

How is a triple bottom different from a triple top? A triple bottom is three defended lows that mark a bullish reversal after a downtrend. A triple top is three failed highs that mark a bearish reversal after an uptrend. They are mirror images.

Sources

1. StockCharts ChartSchool. "Triple Bottom Reversal." https://chartschool.stockcharts.com/table-of-contents/chart-analysis/chart-patterns/triple-bottom-reversal
2. Bulkowski, Thomas. "Pattern Pairs: Triple Bottoms." ThePatternSite. https://thepatternsite.com/ppTripleBottom.html
3. StockCharts ChartSchool. "Triple Top Reversal." https://chartschool.stockcharts.com/table-of-contents/chart-analysis/chart-patterns/triple-top-reversal
4. Investopedia. "Triple Bottom." https://www.investopedia.com/terms/t/triple-bottom.asp

Disclaimer

This article is educational content only and is not financial advice. Nothing here is a recommendation to buy, sell, or hold any security. Consult a licensed advisor before making investment decisions.