Triple Bottom (Reversal)

The Triple Bottom Reversal is a bullish reversal pattern typically found on bar charts, line charts and candlestick charts. There are three equal lows followed by a break above resistance. 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 is completely different from Triple Bottom Breakdown on a P&F chart. Namely, Triple Bottom Breakouts on P&F charts are bearish patterns that mark a downside support break. We will first examine the individual parts of the pattern and then look at an example.

Anadarko Petroleum Corp. (APC) Triple Bottom Reversal example chart from StockCharts.com

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

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

  3. Volume: As the Triple Bottom Reversal develops, overall volume levels usually decline. Volume sometimes increases near the lows. After the third low, an expansion of volume on the advance and at the resistance breakout greatly reinforces the soundness of the pattern.

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

  5. Resistance Turns Support: Broken resistance becomes potential support, and there is sometimes a test of this newfound support level with the first correction.

  6. Price Target: The distance from the resistance breakout to lows can be measured and added to the resistance break for a price target. The longer the pattern develops, the more significant is the ultimate breakout. Triple Bottom Reversals that are 6 or more months in duration represent major bottoms and a price target is less likely to be effective.

As the Triple Bottom Reversal develops, it can start to resemble a number of patterns. Before the third low forms, the pattern may look like a Double Bottom Reversal. Three equal lows can also be found in a descending triangle or rectangle. Of these patterns mentioned, only the descending triangle has bearish overtones; the others are neutral until a breakout occurs. Similarly, the Triple Bottom Reversal should also be treated as a neutral pattern until a breakout occurs. The ability to hold support is bullish, but demand has not won the battle until resistance is broken. Volume on the last advance can sometimes yield a clue. If there is a sharp increase in volume and momentum, then the chances of a breakout increase.

Andrew Corp. (ANDW) Triple Bottom Reversal example chart from StockCharts.com

After a failed double bottom breakout, ANDW formed a large Triple Bottom Reversal. While the new reaction high (black arrow) and potential double bottom breakout seemed bullish, the stock subsequently fell back to support.