Section 7:
Bullish Reversal Patterns
Triple Bottom
Definition:
A triple bottom occurs within the context of an existing bearish trend. It starts when a stock reaches a low from which it sharply rebounds. The stock then hits a high from which it rolls over. The stock falls back down to the previous low and rebounds for a second time, forming two equal lows. The stock then rebounds to its recent highs and rolls over once more. The pattern concludes after the stock falls to its lows and stops going down for a third time. These three lows are connected to form a horizontal support level. The resistance level is defined by the two highs formed after the rebound attempts.
Nuance:
Triple bottoms occur less frequently than double bottoms. But when triple bottoms do form, they provide very precise entry points and risk management levels. Triple bottoms can form over very short and long periods of time.
Triple bottoms can go on and become quadruple bottoms if the same horizontal support level is retested. The patterns can continue indefinitely, but the more often a support level is tested the weaker it becomes. Keep as much in mind when trading triple bottoms that don’t immediately reverse higher.
Application:
A triple bottom is confirmed once the stock breaks above the horizontal resistance level. Entry points can be taken upon the breakout or after waiting for a retest or previous resistance and then buying on the bounce. A triple bottom is rejected if the stock falls below horizontal support.
Figure 7.4
Example:
Shares of Home Depot (HD) traced a perfect triple bottom, starting with a reversal from the $32 level as shown in Figure 7.4. The stock quickly found resistance at the $34 level, and bounced back and forth between these two levels twice more. The stock ultimately broke out in spectacular fashion and trended higher.