DEFINITION of 'Triple Bottom'

A triple bottom is a bullish chart pattern used in technical analysis that's characterized by three equal lows followed by a breakout above resistance.

BREAKING DOWN 'Triple Bottom'

The triple bottom chart pattern typically follows a prolonged downtrend where bears are in control of the market. While the first bottom could simply be normal price movement, the second bottom is indicative of the bulls gaining momentum and preparing for a possible reversal. The third bottom indicates that there's strong support in place and bears may capitulate when the price breaks through resistance levels.

There are a few rules that are commonly used to qualify triple bottoms:

  1. There should be an existing downtrend in place before the pattern occurs.
  2. The three lows should be roughly equal in price and spaced out from each other. While the price doesn't have to be exactly equal, it should be reasonably close to the same price, such that a trend line is horizontal.
  3. The volume should drop throughout the pattern in a sign that bears are losing strength, while bullish volume should increase as the price breaks through the final resistance.

The price target for a double bottom reversal is typically the distance between the lows and the breakout point added to the breakout point. For example, if the low is $10.00 and the breakout is at $12.00, the price target would be (12 - 10 = 2 + 12 = 14) $14.00. Stop-loss points are usually placed just below the breakout point and/or below the triple bottom lows.

The triple bottom is similar to the double bottom chart pattern and may also look like ascending or descending triangles. Traders always look for confirmation of a triple bottom using other technical indicators or chart patterns. For example, traders might note that the stock has an oversold relative strength index (RSI) before a double bottom forms and/or look for a breakout to confirm that it's a triple bottom rather than a descending triangle or other bearish pattern.

Example of a Triple Bottom

The following chart shows an example of a triple bottom chart pattern.

Triple Bottom Chart Example

In this example, Momenta Pharmaceuticals' stock formed a triple bottom and broke out from trend line resistance. The difference between the third bottom and the breakout point was about $1.75, which translated to a take-profit point of around $15.50 on the upside. The stop-loss point could have been placed at around $13.50 to limit downside risk as well.

RELATED TERMS
  1. Double Bottom

    A charting pattern used in technical analysis. It describes the ...
  2. Breakout Trader

    A breakout trader is a type of trader who uses technical analysis ...
  3. Breakout

    A price movement through an identified level of support or resistance, ...
  4. Rising Bottom

    A pattern on a security's chart that results from the daily low ...
  5. Descending Triangle

    A descending triangle is a bearish chart pattern created by drawing ...
  6. Technical Analysis of Stocks and ...

    Technical analysis of stocks and trends is the study of historical ...
Related Articles
  1. Trading

    Technical Analysis: Triple Tops and Bottoms

    Triple and double tops and bottoms may be tough to spot but can be powerful patterns.
  2. Trading

    Breakout Stocks to Watch Right Now

    These three stocks are near major breakout points, which will affect the short-term, and potentially the long-term direction of the stocks.
  3. Trading

    Continuation Patterns: In-Depth Look At Triangles

    We take a closer look at ascending and descending triangles to help traders predict the ultimate breakout direction.
  4. Investing

    Stocks with Breakout Potential (MDT, SLM)

    Stocks are moving within narrowing price bands and are poised for a breakout.
  5. Trading

    Long-term Upside Breakouts Close at Hand

    These three stocks are approaching major highs and resistance, and a breakout could mean another strong advance to the upside.
  6. Trading

    Watch for a Breakout in These Stocks

    Following significant price moves, these stocks are currently moving in small price ranges and are poised for another breakout.
RELATED FAQS
  1. How do I effectively create a Range-Bound trading strategy?

    Understand the basics of trading range-bound securities, including how to profit from the relative predictability of the ... Read Answer >>
  2. How are Three Black Crows patterns interpreted by analysts and traders?

    Understand the basics of the three black crows pattern and how analysts and traders interpret this bearish reversal pattern ... Read Answer >>
  3. How do I implement a forex strategy when spotting a Three Black Crows Pattern?

    Learn a common forex trading strategy traders use to capitalize on the bearish market reversal signal given by the three ... Read Answer >>
  4. What is the Volatility Ratio formula and how is it calculated?

    Understand what the volatility ratio indicator is, how it is calculated and the way this technical indicator is used by traders ... Read Answer >>
Hot Definitions
  1. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  2. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  3. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
  4. Inventory Turnover

    Inventory turnover is a ratio showing how many times a company has sold and replaces inventory over a period.
  5. Watchlist

    A watchlist is list of securities being monitored for potential trading or investing opportunities.
  6. Hedge Fund

    A hedge fund is an aggressively managed portfolio of investments that uses leveraged, long, short and derivative positions.
Trading Center