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Triple Bottom Formation Explained With Chart

Posted By On 5/06/2009 12:55:00 AM Under ,

1. The problem with technical analysis is that it isvery difficult to read a pattern while the same is being formed and once it is formed and event has passed; ione feels wow I was thinking it to be this pattern only. Thus to remove this sense of guilt this is an effort fortriple bottom formation explanation to help investor community to become professional traders.

2. Triple bottom formation is a reversal pattern which is made up of three equal lows followed by a breakout above resistance. One may see this pattern being formed over months and is generally considered to be a long-term pattern. Thus it is advised that one uses weekly charts while determining the trend with this pattern.

3. There must exist a definitive downtrend to reverse or fading downtrend by virtue of sideways trading while looking for this pattern. One will have to see that the 3 lows being formed are almost equal, well spaced and mark significant turning points.

4. One will observe that volume starts declining as triple bottom develops. However one may see volume increase after third low, which shows the bull trend and one must see the volume pattern at advance and at the resistance breakout. A resistance breakout has to occur and thus broken resistance becomes potential support, and there is sometimes a test of this newfound support level with the first correction. Because the triple bottom is a long-term pattern, the test of newfound support may occur many months later.

5. One can determine the price Target by measuring the distance from the resistance breakout to lows and add to the resistance break for a price target. The longer the pattern develops, the more significant is the ultimate breakout. Triple bottoms that are 6 or more months in duration represent major bottoms and a price target is less likely to be effective.
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