If you are aware of the triple top, you will recognize the fact that this is the mirror image of that pattern. Firstly, an extended period of decline will lead to new lows but a rally will occur. Sometimes up to a number of weeks, the stock will drift back down and start to challenge the first low that was previously set but once again, the buyers keep pushing the stock higher. After a third time, the buyers will finally overcome the sellers and the stock will be pushed higher than before.
By adding the difference between the reaction high to the breakout and the first bottom, the technical target can be derived. As you look at the chart, you will see the peak between the second and third bottoms and this is considered to be the breakout level. Until the stock rallies through this point, the formation isn't complete.
When assessing this scenario, it is easy to think that the pattern is heading towards a double bottom pattern but you will soon tell the difference after the third bottom. It should be noted that three similarly equal lows is also found on descending rectangle and triangle patterns which is something to bear in mind.
Three Lows - For the pattern to be complete, the three lows should be well-spaced and near enough at the same level.
Previous Trend - Sometimes, you will see a clear downtrend to reverse and this downtrend (or long trading range) needs to be in place for Triple Bottom. Although this normally signifies the pattern, there may be occasions where the pattern simply dies away after an extended period of time in the sideways trading phase.
Resistance Break - Until the resistance breakout, the pattern is not complete just like many of the other reversal patterns we have seen.
Volume - On the whole, the volume level will decline as the pattern develops but there is a chance that the volume will experience a slight increase at or near the lows. However, an expansion of volume is seen after the third low and at the breakout point. With this increase, the pattern is reinforced and it becomes more trustworthy than before.
Price Target - By measuring the distance between the lows and the resistance breakout, this can then be added to the resistance break itself to find a price target. As the pattern develops over time, the breakout will become more and more significant. However, after six months, they represent major bottoms and it is less likely to be as effective as first thought.
Resistance Turning Support - When the resistance is broken, this has the potential to become support and this can be tested with the very first correction. In fact, this test can occur many months later because it is such a long-term pattern.