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Hey, this is Sasha and thanks for joining me here for another episode of "Let's Talk Stocks."
Today, we're going to go back into some basics of technical analysis. I'm going to take a look at the triple bottom reversal pattern.
Keep in mind patterns can be a continuation of where they continue the trend or reverse the trend from where they're coming from.
We're going to look at six main things:
- What does it look like;
- Previous trend;
- Some projections;
- Entry points; and
- Some tips beyond the pattern.
The Triple Bottom
The triple bottom it stems from hitting three bottoms similar to the double bottom. So if you know about the double bottom, this is going to be very similar.
If we look at our supporting point, it's going to hit a couple of points here.
It starts with a downward trend -- so this is our previous trend.
It moves here when we have this downward trend, and this is our first bottom that we hit.
As we move here in the downward pattern, there's a lot of selling pressure that goes into the stock.
Now eventually, you get to a point where there are buyers that want to step in. They say, 'Hey, it's a good value on the stock.' It may go ahead and do a little bit of a bounce here.
Then other people say, 'Hey oh I'm glad to get it to get out of this stock, so it bounced. I'm ready to get out because it'll probably continue moving lower.' It goes ahead and hits another bottom point.
This is our second bottom.
Keep in mind -- this is our support point or support level here that's being created.
Now, this also starts to create a little bit of resistance up top -- so this is our resistance number one.
And then again, we could go ahead and try and get up to those upper prices because people are again buying it on value. But maybe it doesn't make it that far, so we go and create a triple bottom there -- so this will be our third bottom.
Eventually, this stock what it tends to do with this pattern is it ultimately goes in and breaks out past this resistance level.
Sometimes, this will come in and hit a double top here. So this is one thing to watch out for that we'll talk about here in a minute.
But in general, you got three bottoms here that are created and then eventually the pattern reverses because it's a reversal pattern. And it continues moving into those higher prices.
That's the pattern and the way that it looks.
Now, if we're looking at volume
When you look at the volume of this chart, you typically will want this volume to slow down as the stock is moving lower.
Initially, it's going to be high, especially if you're starting from really high prices. But with time, you want that to decrease because you want those prices to slow down and change direction.
To change direction -- let's say you're driving 50 miles an hour. How do you change course? Well, you got to slow down and make a turn, or you know you got to have a curve.
That's really what we're doing -- we have some time here to make that turn and that curve. So, to change that direction, we want to slow things down as we're coming in to bounce.
Then, when you bounce, you'll probably want a little more volume on the bullish side. Anytime you get these bounces, and you'll want more volume and especially on this later bounce on the breakout. That volume should be excellent or huge on that break out especially breaking out of that resistance level.
That's what you want the volume to be.
As we decline on these depreciating levels, as we pull back from resistance, you want those to be lighter because now you got more buyers that are coming in. More buyers are stepping into the stock and that's why the volume should be picking up to the buy side because we're going to reverse.
You're looking for it's a little difficult to project these movements because this stock could have been selling off from really high prices.
When you get into a triple bottom like the double bottom, a primary projection might be well, let's say I take this first or second supporting level and go up to the resistance.
When I do that, here's my level or range. Then, what I would do is take that consolidation range and put it kind of from the break of the resistance to right there, and that could be my target or projection.
But the reality is the stocks usually appreciate with time and with inflation. They continue to go into the moon. That's just the essential nature of stocks.
Until you get the crash, of course, and then again they keep inflating. That's inflation for you.
We could get back into those upper higher prices where the stock initially started the sell-off. You might even go into even further higher rates into the future over the next five or ten years, depending on how long you're looking to be in the stock or watching the stock.
As far as entry points go
What you could do is you could get in on these bounces, but you don't know if these bounces will continue further to roll over into the next leg or the next down leg because this could be a double top.
It could even create a triple top right.
You see how these patterns could look like something else.
So instead, the better approach is to wait for that breakout right there, and this could be your entry point.
Sometimes these patterns will come back and let's say they come back and retest. They're testing that support level because before it was resistance now it supports and when that bounces that could be an entry point right there.
If you missed entry point one, your second entry point could be right there on the next bounce as you come back to retest that level.
That could be another entry point.
So, to leave off with a few final tips
Remember that this pattern is a reversal pattern. So as you're coming down the trend, you're going to reverse. Eventually, you want that to slow down, and that you-you see it slowing down by watching the volume.
As you get bounces, you want that volume to pick up.
Let's say this peak to start to pick up a little more volume. This peak puts possibly to be a little bigger than the last peak. It doesn't always happen. Then again, as you break out past that resistance, you want even more volume.
So that's a tip.
But remember that this could also look like a double top or a triple top pattern, where this thing could actually continue and roll over even further.
That's why you're waiting for that entry point on those brakes to confirm which direction this stock is moving. Otherwise, you might get a movement in an unexpected direction because remember the pattern won't be called that pattern until this kind of completes itself.
But for you to do the trade, you have to do it almost early enough to get in on it. To capitalize and profit from it.