In the Forex market, the triple bottom pattern is not a pattern that appears frequently or commonly. Compared to other reversal candlestick patterns, it attracts less attention from traders. However, the effectiveness that this candlestick chart brings is not inferior to models such as: Evening Star, head and shoulders… So what specifically is the 3-bottom candlestick pattern? How to apply and trade effectively with these candlestick patterns? Join Forex Trading in reading and finding opportunities in the investment process through this article!
Triple bottom model and basic information
The reason why the 3-bottom candlestick pattern is not commonly used in trading is because its frequency of occurrence is quite rare. Above all, the method of applying and trading the model is also quite difficult. However, everything will become easier if you master all the basic knowledge related to the triple bottom pattern.
What is a 3-bottom candlestick chart and how is it formed?
First, conceptually, the triple bottom candlestick chart is a type of Forex price pattern. The purpose is to help traders identify market reversal trends. In particular, the model includes 3 bottoms shaped like 3 V letters combined. Accompanied by two A-shaped peaks and a breakthrough point on the resistance line. Usually, this pattern will appear at the end of a downtrend and shows signs that the price is about to reverse from down to up. It is formed through 5 stages, specifically:
- The price is in a long downtrend and the market reverses to the upside, creating bottom 1 (Bottom 1). After that, the price will continue to increase and then turn down, creating peak 1.
- Next, the supply in the market still increases so the price will turn down, creating the second bottom.
- Similarly, a third bottom (Bottom 3) will be created, nearly equal to the previous two bottoms. At that time, the horizontal line passing through the three bottoms is the support line.
- The straight line connecting two vertices is called Neckline. It acts as a resistance line in Forex technical analysis.
- After creating the third bottom, the 3-bottom candlestick pattern will be complete when the price breaks the resistance area or Neckline. The broken resistance becomes a potential support line and the price could retest this new support level with the first correction.
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Detailed structural analysis of the 3-bottom model for newbies
To help readers better understand this reversal candlestick pattern. We will learn and analyze the structure of the 3-bottom candlestick pattern. And here is the explanation of the pieces that make up the 3-bottom reversal candle:
- Trend: With any reversal candlestick pattern, you first need to determine the current trend, before it breaks and reverses. For the triple bottom pattern, a clear downtrend will be formed first.
- Three bottoms: Make sure these 3 bottoms are almost equal, no bottom is too low. Only then can it be assembled into a complete model.
- Trading volume: As the triple-bottom candlestick chart develops, trading volume will gradually decrease. When the third bottom forms, trading volume will begin to increase. This acts as the first step for a reversal and pushes prices up.
- Resistance Break: Patterns will not be able to form if they cannot break resistance. At that time, the highest price point will be interrupted and divided into 2 peaks, then forming a resistance line.
- Support becomes resistance: The broken resistance becomes a potential support line and the price will retest or have corrections in this area.
- Take profit point: It is the distance from the broken resistance level to the lowest level of the 3 bottoms. The longer the pattern develops, the stronger the price breakdown will be.
Popular types of 3-bottom models today
Currently, the 3-bottom candlestick pattern is divided into 2 popular forms, which are:
- 3 rising bottom candlestick pattern: This shows investors how effectively the market can continue to trend higher. Or it often appears after a downtrend.
- Descending 3-bottom candlestick pattern: This candlestick chart is also a version of the 3-bottom candlestick but there is a difference. That is the tendency to form lower market bottoms or peaks.
Example illustrating 3-bottom candlestick patterns
Look at the illustrative examples of the types of triple bottom candlestick patterns below to better understand:
- Example 1: This is a completed triple bottom candlestick pattern and has a retest of the Neckline of the CAD/JPY exchange rate pair.
- Example 2: Real-life example of the AUD/JPY currency pair
Compared to image 1, this model has a higher recognition difficulty. However, if you are a long-time trader, the chart above is relatively clear.
If in this situation, you can trade according to the drawing. The best time to enter a trade is the second break of the neckline after the price falls back. At the same time, the candle places the loss close to the lowest level of the Pullback price.
Effective trading application with the 3-bottom model in Forex technical analysis
After the 3-bottom candlestick chart appears completely, traders can apply effective trading with 2 strategies such as:
Strategy 1: Enter an order when the price breaks the Neckline
- Entry point: Right at the point where the price crosses the neckline.
- Stop-loss point: Stop-loss is placed at the 3rd bottom and should be slightly above the candle shadow to avoid being hunted for stop losses.
- Take profit point: Set above the resistance line a distance equal to the distance from the bottom to the top of the 3-bottom model .
Strategy 2: Enter an order when the price returns to retest the Neckline or resistance line
When the price breaks the Neckline, the price will usually return to reset the Neckline. At that time the support line became the resistance line. If the price begins to show signs of decreasing, we will enter an order at this time. Specifically as illustrated:
- Entry point: At the point where the price returns to reset the resistance line.
- Stop loss point: Past the 3rd bottom, should exceed the candle shadow to avoid cutting loss.
- Take profit point: Located above the resistance line, which is the distance from the bottom to the top of the pattern.
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Some notes when using the 3-bottom candlestick chart
To be able to plan better trading when encountering these candlestick patterns, here are some things that you need to pay careful attention to.
- The market must be in a downtrend before it begins to form a triple-bottom pattern.
- The 3-bottom candlestick is only complete when the price breaks the resistance line after forming the 3rd bottom.
- If the third bottom is higher than the second bottom, the uptrend will be even stronger.
- The resistance level of this candlestick chart is considered the Neckline.
- This model has the longest formation time (from 3-6 months). Therefore, traders may mistake it for a double bottom pattern during that period.
- Don’t forget to set a stop-loss order to protect your account because every price model has errors.
- Although the three-bottom candlestick pattern appears less frequently than the double-bottom pattern, it is more profitable.
- Should be used in combination with indicators: RSI, MACD… and other reversal candlestick patterns such as ascending triangle pattern, Pin Bar candlestick, Hammer… To be able to accurately confirm reversal signals before trading.
Summary:
Thus, the above article on Forex Trading has provided all the information you need to know about the triple bottom pattern for readers. To trade effectively with this price model, the most important thing is time to study and experiment. Once mastered, applying it to a real account will be easier than ever. And don’t forget to support us by leaving a comment and a 5-star rating for this article!
FAQs:
How is the 3-bottom candlestick pattern used in Forex technical analysis?
This pattern shows a reversal signal from a downtrend to an uptrend in technical analysis.
Is the triple-bottom price model highly reliable?
It can provide potential reversal signals. However, it needs to be considered in combination with other factors to make accurate trading decisions.
What factors should be considered to identify a 3-bottom candlestick pattern?
To increase reliability, traders should consider factors such as Trading volume, support and resistance, technical indicators…
