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Friday, October 16, 2009

TRIPLE BOTTOM PATTERN – Part 1: Formation

Triple Bottom Pattern is a bullish reversal pattern that normally forms after an extended downtrend, which marks a shift in trend from bearish to bullish.

The Formation of Triple Bottom Pattern



Triple Bottom Pattern contains three consecutive, distinct & sharp bottoms at about the same price level, with two moderate peaks in between the bottoms, followed by a breakout through a resistance.
This pattern forms when the price is in an existing downtrend. It occurs when the price drops to a support level (forming the 1st bottom), then increases (forming the 1st trough), and then return to the support level (forming the 2nd bottom), then increase again (forming the 2nd trough), and then drop back to the resistance level again (forming the 3rd bottom), before subsequently increase further.

Although the price bottoms do not necessarily need to be exactly the same, but it should appear near the same price level.

The pattern is completed and confirmed when the price increases and closes above the highest high of the two peaks, which serves as the key resistance level in this pattern. This highest high point is called the “Confirmation Point”.

This pattern occurs because the sellers attempt to push the price lower, but are not able to do so as they are facing support, which prevents the continuation of the downtrend. After three failed attempts, the sellers in the market exhausted and gave up, and the buyers begin to be more aggressive to take control of the market and drive the price higher, pushing it up into a new uptrend.

To be continued to Part 2: Important Characteristics of Triple Bottom pattern.

To find out more about other Chart Patterns, please refer to:
Learning Charts Patterns

Related Topics:
* Free Trading Educational Video: Learn Technical Tips from Dan Gramza
* Learning Candlestick Charts
* Options Trading Basic – Part 1
* Options Trading Basic – Part 2
* Understanding Option Greek
* Understanding Implied Volatility (IV)
* Understanding Option’s Time Value

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