The triple bottom chart follows typically a continuous downtrend where bears are in control of the stock market. The first bottom indicates the normal price movement, whereas the second bottom depicts the bulls gaining the force and anticipate for possible reversal. The third bottom indicates the strong support system in case the bears may surrender when the price breaks the sustenance levels.
KEY POINTS
- The triple bottom is a visual representation that shows the purchasers (bulls) having control of the price action from sellers (bears).
- The formation of triple bottom is taken as an opportunity to access a bullish position.
All the three highs should be equal, spaced, and mark distinct turning points to build the support. The lows shouldn’t be exact at the same level but should be near to each other. The last bottom higher than the middle is considered better. The appearance is quite similar to the inverse head and shoulders pattern .It is represented by three series highs and lows. The inverse head and shoulder pattern is lower than the first and third bottoms. The three bottoms are same in height
HOW TO TRADE BY USING TRIPLE BOTTOM PATTERN
Open your position before the breakout occurs just above the neckline, when the breakout occurs to trade in the triple bottom chart. You can continue to go far using the triple bottom by purchasing your selected asset when you expect the value increment, just hopping to sell it again the moment its price increases.
You can use the technical analysis tools such as moving average convergence divergence (MACD) and Fibonacci retracement levels to confirm whether the reversal pattern has occurred.
Let’s understand briefly MACD and Fibonacci retracement.
MACD (Moving Average Convergence Divergence) and Fibonacci retracement are both popular technical analysis tools used by traders and analysts in financial markets, but they serve different purposes:
Execute the strategy:
Put the wheels in motion and stop the trial and error method. It is necessary to understand that any trading strategy will not give money from the beginning. Furthermore, it is a continuous process of applying the strategies without emotional breakdown.
Learn from your mistakes:
Evaluating your trades gives two purposes:
Firstly, the trader thinks that the losses incurred are caused by themselves. Yes, despite of following the correct strategies sometimes the things goes off the hands. In the first place it is more evident that the losses incurred are due to violating the rules.
Secondly, the regular trade review could exhibits the problems with your following strategy. Therefore, most of the traders don’t learn from their past mistakes. Today, we have websites for ex: Edgewink.com trading journal that helps to review the procedure.
1. MACD (Moving Average Convergence Divergence):
Purpose: MACD is primarily used to identify changes in the strength, direction, momentum, and duration of a trend in a stock's price.
Components: It consists of two moving averages (short-term and long-term) and a histogram that represents the difference between these two moving averages.
Signals: Traders use MACD to understand the buying and selling signals, crossovers, denoting potential trend reversals or iterations
2. Fibonacci Retracement:
Purpose: : Fibonacci retracement levels are used to identify potential support and resistance levels based on the Fibonacci sequence, which is believed to reflect natural patterns in financial markets.
Levels: : The key Fibonacci levels used are 23.6%, 38.2%, 50%, 61.8%, and sometimes 78.6%. These levels indicate potential price reversal or continuation points.
Application: Traders use Fibonacci retracement levels to determine entry and exit.
SUMMARY
- The triple bottom pattern is a chart representation that has three equal bottoms.
- When the breakouts occurs just above the neck line, that is after the market price touches the third bottom, open your position
- The triple bottom pattern is more convenient for businessmen who are trend flowers and prefer lengthy position.
- The most common mistake observed is when trading the triple bottom pattern is placed a long trade after a breakout level is occurred, that is the time when traders decides to pull back.
- Using CFD trading one can have a sound knowledge to the price movement of assets without taking direct ownership