John Lansing

Technical Analysis 101: Triple-Bottom

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While the three lows should be sharp and distinct, the highs of the pattern can appear to be rounded. The pattern is complete when prices rise about the highest high in the formation.

The highest high is called the "confirmation point."

Like the head-and-shoulders bottom, which it so closely resembles, the triple-bottom is considered to be a reliable pattern. But this pattern, the experts warn, can be easily confused with other similar patterns.

For example, if the center low is lower than the other two, the pattern may be a head-and-shoulders bottom. Also, if the three bottoms are successively higher or lower than one another, the pattern may instead be a triangle formation.

Because the pattern is easy to confuse, an investor should look for three sharp lows that are well-separated and not part of a larger congestion pattern. In addition, between the lows, the highs should be fairly rounded in shape, although it is not absolutely necessary to the validity of the pattern.

If the pattern fails to move up and break through the confirmation point after reaching the third low, the pattern is not a valid triple-bottom.

Generally, trading volume in a triple-bottom tends to trend downward as the pattern forms. Volume tends to be lighter on each successive low. It then picks up as prices rise above the confirmation point and break into the new upward trend.

For more Technical Analysis 101, see:

• Triangles
  
• Double-Bottom and Double-Top
  
• Head-and-Shoulders Bottom
  
• Head-and-Shoulders Top