What it means
The pattern forms after a decline. The price drops to a level, rebounds, drops again to nearly the same level, rebounds again, and then tests that level a third time.
The repeated failure to fall below it suggests that buyers are stepping in at that price. The line drawn across the peaks between the three lows is called the neckline or resistance level.
The pattern is only complete when the price closes above it, ideally with rising trading volume. Until that happens, a triple bottom is just a possibility and the downtrend may well continue.
Traders use the pattern to time entry into a share, currency or commodity. A common approach is to buy after the breakout above the neckline and place a stop-loss order (an instruction to sell automatically at a set price) just below the support level to limit the loss if the pattern fails.
It is similar to the double bottom, but the extra test is thought to make the support level more convincing. The pattern is rarer, however, and takes longer to form, often several months on a daily chart.
Be careful with the name. A different idea, the triple bottom line, is a sustainability framework that measures people, planet and profit, and has nothing to do with chart patterns.
If a report mentions a triple bottom in the context of price charts, it is the chart pattern. As with other chart patterns, the longer the pattern takes to form and the more clearly the support level holds, the more weight traders tend to give it.
A very tight pattern on a thinly traded share deserves more doubt than one on a heavily traded index.
In practice
Real-world examples.
Example
A retail investor notices a share price touching $20 in March, May and July before rising above $26 in August. She buys on the breakout and places a stop-loss below $19.
Example
A currency trader at a corporate treasury sees the euro against the dollar test the same low three times in a quarter. Her team uses the observation to time a hedge, taking more of the exposure off the table once the price clears the neckline.
Example
A commodity analyst writes that oil has formed a triple bottom near a key level. The note says the pattern points to a possible end to the decline, but warns clients to wait for a close above the neckline before acting.
Formula
Calculation
Price target = Neckline level + (Neckline level - Support level)
A share falls to $20 three times, with rebounds peaking at $26 in between, so the neckline is $26 and the support level is $20. The height of the pattern is 26 - 20 = $6.
After the third rebound, the price closes at $27 on rising volume, confirming the breakout above $26. The measured target is 26 + 6 = $32. A trader buying at $27 with a stop at $19 risks 27 - 19 = $8 to gain 32 - 27 = $5, so this particular trade would have a poor reward-to-risk ratio, which shows why the entry point matters.Case study
Seen in the real world.
Kestrel Ridge Partners is an illustrative, fictional fund that held shares in a mining company that had fallen from $34 to $12. The analyst saw the price bounce at $12 in February, April and June, with rebounds to $18 in between.
The fund set a rule: add $250,000 to the position only if the price closed above $18, and exit if it closed below $17. In July the price closed at $19 on heavy volume and the fund bought.
The illustrative lesson is that the pattern gave the fund a clear plan, with a stated entry and exit, instead of a guess. The price rose to $26 over the next four months, but the analyst recorded that the same rule would have limited the loss to roughly 10% of the added money if the pattern had failed, since the exit sat $2 below an entry of $19.
Watch out
Common mistakes.
- Buying at the third low before the price has broken above the neckline, when the pattern is not yet confirmed.
- Confusing the pattern with the triple bottom line, which is a sustainability reporting idea.
- Ignoring volume, when a breakout on weak volume is more likely to fail.
Questions
People also ask.
How is a triple bottom different from a double bottom?
It has one more test of the support level, which many traders think makes it a stronger signal, though it is also rarer.
What is the opposite pattern?
The triple top, in which the price reaches the same high three times and then falls through the support level between the peaks.
Does it always work?
No, it is a probability, not a guarantee, and traders normally combine it with other indicators and risk controls.
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