Triple Bottom Reversal

The Triple Bottom Reversal is abullish reversal pattern typically found on bar charts, line charts andcandlestick charts. There are three equal lows followed by a break aboveresistance. As major reversal patterns, these patterns usually form over a 3-to 6-month period. Note that a Triple Bottom Reversal on a bar or line chart iscompletely different from Triple Bottom Breakdown on a P&F chart. Namely,Triple Bottom Breakouts on P&F charts are bearish patterns that mark adownside support break. We will first examine the individual parts of thepattern and then look at an example.

Prior Trend: With any reversalpattern, there should be an existing trend to reverse. In the case of theTriple Bottom Reversal, a clear downtrend should precede the formation.

Three Lows: All three lows shouldbe reasonably equal, well-spaced and mark significant turning points. The lowsdo not have to be exactly equal, but should be reasonably equivalent.

Volume: As the Triple BottomReversal develops, overall volume levels usually decline. Volume sometimesincreases near the lows. After the third low, an expansion of volume on theadvance and at the resistance breakout greatly reinforces the soundness of thepattern.

Resistance Break: As with many otherreversal patterns, the Triple Bottom Reversal is not complete until aresistance breakout. The highest point of the formation, which would be thehighest of the intermittent highs, marks resistance.

Resistance Turns Support: Brokenresistance becomes potential support, and there is sometimes a test of thisnewfound support level with the first correction.

Price Target: The distance fromthe resistance breakout to lows can be measured and added to the resistancebreak for a price target. The longer the pattern develops, the more significantis the ultimate breakout. Triple Bottom Reversals that are 6 or more months induration represent major bottoms and a price target is less likely to beeffective.

As the Triple Bottom Reversaldevelops, it can start to resemble a number of patterns. Before the third lowforms, the pattern may look like a Double Bottom Reversal. Three equal lows canalso be found in a descending triangle or rectangle. Of these patternsmentioned, only the descending triangle has bearish overtones; the others areneutral until a breakout occurs. Similarly, the Triple Bottom Reversal shouldalso be treated as a neutral pattern until a breakout occurs. The ability tohold support is bullish, but demand has not won the battle until resistance isbroken. Volume on the last advance can sometimes yield a clue. If there is asharp increase in volume and momentum, then the chances of a breakout increase.

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