Triple Bottom: A Strong Reversal Growth Model

Comprehensive Analysis of the Triple Bottom Pattern

1. Mechanics and Definition of Triple Bottom

1.1. Structure of the Pattern

The Triple Bottom pattern consists of three lows at approximately the same level, separated by two pullbacks to the "neckline." It forms after a sustained downtrend and signals a potential reversal. The key steps include:

First Low

Takes place at the peak of selling and is often accompanied by high volume due to panic selling. This low establishes the primary support line.

First Recovery

After the first low, the price corrects upward to the resistance level that will become the "neck" of the pattern. This recovery is typically accompanied by decreasing volume, as sellers still dominate.

Second Low

The price returns to the level of the first low, but the selling pressure is weaker: the volume of the second trough is usually lower, indicating accumulation of buys.

Second Recovery

The price again approaches the neck, and if the resistance holds, this signals a reversal. Volume during the second recovery is generally higher than during the first.

Third Low

The sellers make a final attempt to push the price down to the level of the low, but usually with even less volume, indicating a complete exhaustion of selling.

Break of the Neckline

A candle closing above the neckline with volume 20-30% higher than the average over the past 20 periods confirms the trend change to upward.

1.2. Conditions for Reliable Formation

For reliability, the pattern must meet the following criteria:

• The lows are within ±3% of each other.
• The interval between the lows is 10-20 periods (daily or smaller time frames).
• Volume decreases at each new low.
• Volume during the neckline breakout increases by at least 20-30% above average.

2. Visual Identification and Key Levels

2.1. Neckline

The neckline is drawn through the two local highs between the troughs. If they are approximately at the same level, a horizontal line is drawn. In the case of shifted highs, the line may have a slight incline.

2.2. Measuring the Growth Target

The growth target is calculated as the difference between the neckline level and the low. For example, if the low is at 100 ₽ and the neck is at 120 ₽, the target is 140 ₽.

2.3. Additional Graphic Tools

To enhance accuracy, the following tools are used:

• Fibonacci levels between the first low and the neck for identifying retest points.
• Channel drawing through lows and highs for visual movement boundaries.
• Volume Profile for identifying price zones with maximum volume, indicating potential accumulation or distribution.

3. Confirmation of Signals with Volume and Indicators

3.1. Volume

The main signs are:

• Maximum volume on the first day.
• Decrease in volume on the second and third days.
• Volume increases during the neckline breakout by at least 20-30% above average.

3.2. RSI and MACD

RSI: Divergence during the second and third days: lower prices and higher RSI minimums indicate a divergence and the beginning of a reversal.

MACD: The crossing of the signal line from below and the increase in the histogram during the neckline breakout strengthen the signal.

3.3. ADX

A drop in ADX below 25 during the formation of the bottom indicates weakness in the downtrend; a rise in ADX after the neckline breakout signals strength in the upward movement.

3.4. Multi-timeframe Analysis

Synchronizing signals on higher (daily) and lower (hourly, 15-minute) time frames reduces false breakout occurrences. A candle closing above the neck on both time frames confirms the strength of the signal.

4. Trading Strategies and Risk Management

4.1. Entry into Long Position

Entry is made after closing a candle above the neckline with volume above average. An aggressive option is to enter on the first retest of the neckline after the breakout if it holds as support.

4.2. Stop-Loss and Take-Profit

Stop-Loss: ATR×0.5 or 3-5 ₽ below the third low.

Take-Profit: Determined by the target level based on the height of the pattern with 50% profit locked in at the first level.

4.3. Trailing Stop and Averaging

The trailing stop is moved behind the neckline or subsequent local lows. Averaging is applied only when there is a clear and sustained upward impulse.

4.4. Trading Scenarios Table

5. Psychology and Filtering False Breakouts

5.1. Psychology of Bottom Formation

On the first day, fear of capitulation dominates; on the second and third days, cautious accumulation occurs. It is crucial not to succumb to panic during the retest of the neckline.

5.2. False Breakouts

False breakout: a brief price move above the neckline without volume, quickly returning to range.

To filter out false breakouts:

• Volume > 120% of the average.
• Candle closing above the neckline.
• Confirmation from RSI/MACD/ADX.

5.3. Discipline and Trading Journal

Keeping a record of all trades with dates, levels, volumes, and indicators allows for the identification of weaknesses in the strategy and the elimination of emotional errors.

6. Practical Cases and Examples

6.1. Sberbank Stocks, Spring 2024

Lows at 265 ₽ and 267 ₽, neckline at 285 ₽. A breakout of the neckline with volume +170% resulted in a rise to 310 ₽ (+9% in a month).

6.2. Brent, Summer 2023

Lows at $60 and $61, neckline at $65. A breakout with volume +200% led to $72 (+10% in 2 weeks).

6.3. BTC/USD, Winter 2022

Lows at $16,000 and $16,200, neckline at $18,000. A breakout with institutional volume lifted the price to $20,500 (+14%).

6.4. Gold, Autumn 2023

Lows at $1,700 and $1,710, neckline at $1,750. Price rose to $1,820 (+4%) after a breakout and retest.

7. Conclusion and Checklist

The Triple Bottom pattern, when strictly adhering to formation rules and confirming signals, is a reliable tool for entering long positions.

• Check the symmetry of lows (±3%).
• Interval between lows — 10-20 candles.
• Draw an accurate neckline based on closes.
• Ensure decreasing volume on the second and third days.
• Wait for a significant breakout of the neckline (>20% above average).
• Confirm divergence in RSI and signals from MACD/ADX.
• Enter after closing a candle above the neckline or on the retest.
• Set Stop-Loss — ATR×0.5 below the third low.
• Establish Take-Profit based on the height of the pattern with partial closure of 50%.
• Utilize trailing stops and maintain a trade journal.

This step-by-step methodology will assist in effectively applying the Triple Bottom model in any market, minimizing risks, and maximizing profits.