How to trade using Triple Bottom Pattern?

Today we are going to learn about Triple Bottom Pattern

So for we have seen 6 different trading pattern and I hope you have liked it and understood better. This week let us learn about a bullish chart reversal pattern, which is Triple Bottom pattern.

Different parts of Triple Bottom pattern

There are four major parts which forms this pattern.

1. First Valley – V/U Shaped – The market does a pullback during a downtrend and forms an V/U shape. At this point, there’s no way to tell if the market will reverse because a pullback occurs regularly in a trending market.
2. Second Valley – V/U Shaped – The price gets rejected at the same area, again. At this point, the market makes a pullback and forms a consolidation. This is a first sign that the market could reverse higher. This forms the second V/U shape
3. Third Valley – V/U Shaped – Again, the market attempts to break out lower and fails, again. The price gets rejected at the same area once again. This forms the third V/U shape. Now the 3 “spikes” are visible after 3 failed attempts to break out.
4. The trendline – This is the last line of defence for the sellers. If the price breaks above it, the market could reverse, head higher and begin the start of a new uptrend.

Once you identify the Triple Bottom formation, just draw a straight line at the top which connects swing high of the valley. We will get a technical breakout when the price gives breakout above the line drawn.

Things to Remember,

1. If you spot a Triple Bottom in a strong downtrend, chances are, the market will continue dropping lower. So, the last thing you want to do is go long just because you spot a Triple Bottom chart pattern. This is the biggest mistake traders make when trading Triple Bottom chart pattern
2. The space between the first and second and third valley’s should not be too close.
3. How do you know when a breakdown is going to be false so that you can avoid becoming one of the “trapped” traders?
   1. Firstly, if you see a strong power move into the trendline followed by a bearish price rejection, then there’s a good chance that the market might reverse from there. What is bearish price rejection? it is a simple candlestick pattern. Please refer the first few episodes of our price action trading series to know more about bearish price rejections.
   2. Secondly, if the higher timeframe is in downtrend, then chances are the Triple Bottom pattern will fail and the price will continue dropping lower since the higher timeframe is in downtrend.

Volume Factor on Handle part

As I always say, the volume is most important thing you need to check for technical breakout in any pattern. So a perfect Triple Bottom pattern will give double confirmation when the price gives breakout to the upside with big volume.

Entry, Target and SL

You can enter into the trade once the price gives the breakout above the trend line.

Note:

• Never entry before you see huge volume – it will be too early.
• Also, never chase the price, it is already too late.

If you are new trader, you can enter the trade during pullback to the trendline or if pullback forms flag pattern after breakout.

If you are an experienced trader, you can even enter the trade once 50% of the 3rd valley is formed and if you spot a candlestick reversal pattern. Refer first few episodes of our price action trading series to know more about candlestick reversal pattern. But this type of early entry is almost similar to horizontal channels we discussed in the last episode.

The target for this pattern is arrived by measuring the height of the valley from trendline. So if the height of the valley is say 100 points then the technical target is 100 points from the breakout line or trendline.

When it comes to SL, Once the price is given a upside breakout above the trendline, the trendline point becomes your immediate support and you can keep low price of the valley as your SL. But if there is build up or consolidation near the trendline, that can be used as SL directly.

Also, if you are taking early entry near 3^rd valley or late entry during the pullback, you need to adjust your Target and SL accordingly.