Bulkowski on Triple Bottoms

Multi-peaks make me nervous. They are the basis of a bear trap. After trending upward, price moves sideways, forming a series of peaks and valleys, not moving higher or lower by much. Then a bullish pattern appears, often slightly below the prior valleys of the multi-peak. You might think it's bullish and price does rise. It can make it to the top of the tallest peak in the multi-peak pattern but then the stock tumbles. What was a promising bullish trade turns into a disaster when the trade fails.

This is an example of that situation. The triple bottom trade fails quickly after an upward breakout.

Here's a situation that had me fooled. Circled on the upper left, the stock gaps lower, suggesting something is wrong with the company. A bullish triple bottom appears. The stock gaps up and confirms the triple bottom with an upward breakout. Would I take the trade? No. I would expect the gap lower to prevail and more bad news to come. The stock did reach its measure rule target (red dot) and the ultimate high (green dot) is a bit higher. But then the stock reversed, sending price lower. Even though I avoided taking this trade, I think I made the right decision.

Avoid long uptrends. If your chart pattern (a triple bottom in this case) appears after a long uptrend (how long is 'long'? Unknown), I would avoid thinking the stock was going to rise much farther.

This chart is an example of an uptrend the started in June 2013 and peaked a year later. Then the triple bottom appeared and promptly failed. The stock did not rise far enough to reach the predicted target (that is, the height of the triple bottom added to the price of the top of the pattern gives a target).

Here's a stock that gives hints of failure. At A, we see the stock gap higher but then fade. At B, I saw the tall black candle and decided to avoid the trade. Often when you see these tall price bars that end the day near the start, either upward or downward, they are bearish or bullish, respectively. In this example, it's bearish and the downtrend follows what happened at A. The tall price bar at B is called a tail or spike.

Here's another example of a price spike or tail. I've circled it in red. Notice that the stock declined after its appearance (not long, mind you, less than 2 weeks). That made me want to avoid trading the triple bottom. The breakout was upward and the stock reached the ultimate high at the green dot before collapsing. The trade failed to meet its target.

This trade was easy to guess that it would fail. At A, on 7/20, the stock gapped lower. Gap B, is about three months later, 11/1. We can guess that the two events are earnings related. Fixing earnings can take more than a few days, so when the triple bottom (BBB) appeared, I expected the trade to fail. The stock dropped to 93 and change.