As of 04/19/2021
  Indus: 34,078 -123.04 -0.4%  
  Trans: 14,799 -120.71 -0.8%  
  Utils: 921 -2.88 -0.3%  
  Nasdaq: 13,915 -137.57 -1.0%  
  S&P 500: 4,163 -22.21 -0.5%  
YTD
 +11.3%  
 +18.3%  
 +6.5%  
 +8.0%  
 +10.8%  
  Targets    Overview: 04/15/2021  
  Up arrow34,800 or 32,900 by 05/01/2021
  Up arrow15,200 or 14,000 by 05/01/2021
  Up arrow950 or 885 by 05/01/2021
  Up arrow15,000 or 12,900 by 05/01/2021
  Up arrow4,400 or 3,900 by 05/01/2021
CPI (updated daily): Arrows on 3/25/21
As of 04/19/2021
  Indus: 34,078 -123.04 -0.4%  
  Trans: 14,799 -120.71 -0.8%  
  Utils: 921 -2.88 -0.3%  
  Nasdaq: 13,915 -137.57 -1.0%  
  S&P 500: 4,163 -22.21 -0.5%  
YTD
 +11.3%  
 +18.3%  
 +6.5%  
 +8.0%  
 +10.8%  
  Targets    Overview: 04/15/2021  
  Up arrow34,800 or 32,900 by 05/01/2021
  Up arrow15,200 or 14,000 by 05/01/2021
  Up arrow950 or 885 by 05/01/2021
  Up arrow15,000 or 12,900 by 05/01/2021
  Up arrow4,400 or 3,900 by 05/01/2021
CPI (updated daily): Arrows on 3/25/21

Bulkowski on Busted Triple Bottoms

 

Updated with new statistics on 12/29/2020.

The third edition of this book Encyclopedia of Chart PatternsEncyclopedia of Chart Patterns. has a table in most chapters discussing busted pattern performance.

$ $ $

Busted Triple Bottoms: Summary

The decline after a busted triple bottom averages 14% in a bull market, but that assumes the busted triple bottom is traded perfectly.

Busted Triple Bottoms: Single Busts

Picture of Bunge (BG) on the daily scale.

The figure shows an example of a single busted triple bottom. The triple bottom appears at ABC. The price trend is downward leading to the start of the triple bottom. This is almost always the case. After that, the three bottoms appear near the same price. In this case, B and C tend to form higher lows than A, but nothing is perfect. The ABC pattern is a very small and compact example of a triple bottom. Usually triple bottoms span many months.

Price breaks out upward from the triple bottom when price closes above the highest peak between the three bottoms. Price peaks in the triple bottom at F, at 67.39, and price climbs to G, 73.49, for a gain of 9%, just below the 10% cutoff for busted patterns.

After price peaks at G, it tumbles to D, where it closes below the bottom of the triple bottom, busting it. I highlight the lowest bottom with a horizontal red line. Price continues lower until bottoming at E. Point E, 57.18 is 11% below A, 64.37 (that is (64.37 - 57.18)/64.37 = 11%). That means price has dropped more than 10%, completing the single busted triple bottom.

For a single bust, look for:

  1. Price must confirm the triple bottom by closing above the top of the triple bottom. See the ID Guidelines for more information. That occurs at H in the figure.
  2. Price must rise no more than 10% (the rise from F to G).
  3. Price then closes below the bottom of the triple bottom (D).
  4. Price continues dropping more than 10% (the drop from A to E) before either closing above the top of the triple bottom or rising by more than 20% from a valley (not shown in the figure).

The last point, 4, means the ultimate low must be more than 10% below the bottom of the triple bottom. If price fails to drop more than 10%, then it could be forming a double bust.

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Busted Triple Bottoms: Double Busted

Picture of Bristol-Myers Squibb (BMY) on the daily scale.

The chart of BMY shows a triple bottom at ABC. The horizontal red line marks the top of the chart pattern and the horizontal blue line highlights the bottom of the pattern.

Price confirms the triple bottom when it closes above the red line, but then the stock drops to D. Notice that D closes below the blue line, busting the upward breakout from the triple bottom. Price reverses immediately and climbs, closing above the horizontal red line at E. This busts the pattern for the second time.

Notice that the drop from the low at A to D is no more than 10% before it climbs to E. If the drop had exceeded 10%, then this would have been a single bust regardless of how far up price then moved. As it is, BMY is an example of a double busted triple bottom.

For a double bust, look for these elements.

  1. Price must confirm the triple bottom by closing above the top of the triple bottom. See the ID Guidelines for more information.
  2. Price must rise no more than 10% before reversing (the move from the red line to F, in this example).
  3. Price must drop no more than 10% below the bottom of the triple bottom (the drop from the low at A to D).
  4. Price then rises more than 10% above the top of the triple bottom (the move from the red line, to the end of the up trend).

If price fails to rise more than 10% above the top of the triple bottom a second time or if price closes below A (the lowest valley of the triple bottom), then it is a triple busted triple bottom. Sounds complicated, doesn't it?

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Busted Triple Bottoms: Triple Busts

Picture of CNET Networks (CNET) on the daily scale.

I show a picture of CNET Networks on the daily scale. Price forms a triple bottom at ABC. Price confirms the triple bottom when it closes above the highest bottom. This occurs at D.

Price continues rising for a few more days to H then reverses. The climb from the red line to H is no more than 10%. Price then tumbles to E, closing below the bottom of the triple bottom (blue line). Notice that the drop from A to E is no more than 10%. This downward move and close below the triple bottom busts the chart pattern for the first time.

Price then climbs to F and closes above the red line, busting the pattern for the second time. The rise from the red line to F is no more than 10%. Then price reverses and drops to G (closing below A, the lowest low in the triple bottom), busting the triple bottom for a third time. At this point, I stopped counting.

If G were 10% below the blue line, it would complete the triple bust. In this example, however, price rises again and busts the triple bottom for a fourth time then drops and busts the chart pattern for the last time. Price drops more than 10% below the blue line, completing the busting count at five.

For a triple (or more) busted triple bottom, look for the following:

  1. Find a double busted triple bottom except that price fails to rise more than 10% after the second bust (the rise from the red line to F). In this example, E is the first bust, and F is the second.
  2. Price drops and closes below the bottom of the chart pattern, but does not drop more than 10% below the bottom (the drop to G, which closes below the blue line).
  3. Price completes the third bust when it closes above the top of the triple top (the red line in this case).
  4. If price fails to rise by more than 10% before reversing and closing below the bottom of the triple bottom, additional up and down cycles may continue, busting the triple bottom more than three times.

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Busted Triple Bottoms: Performance

Here's a few statistics from the book.

Busted Triple Bottoms: Trading

Picture of Tellabs (TLAB) on the daily scale.

I show a picture of Tellabs (TLAB) on the daily scale. The triple bottom is at ABC with valley C a bit above the other two. The horizontal red line marks the top of the triple bottom, and the horizontal blue line marks the bottom of the chart pattern.

Price confirmed the triple bottom when it closed above the red line, but it does not move far before gapping lower and closing below the blue line at D. When that happened, it busted the triple bottom.

Price recovered and eased higher for a month, going into January. Then, the company announced earnings at E and the stock began a dead-cat bounce. The actual bounce did not last long -- about a week in February -- before the decline resumed. This decline after the bounce is typical for a dead-cat bounce pattern.

The stock bottomed in August 2011 at 3.67 for a 45% decline below the triple bottom.

Before attempting to trade a busted triple bottom, ask yourself why would you? The average drop (for all busted triple bottoms) is just 14% and that's if you trade it perfectly. You will have the best success if the company, industry, and markets are all moving down. In other words, trade busted triple bottoms in a bear market or under unusually weak conditions.

For example, in a bear market, perfect trades from busted triple bottoms lose an average of 20% of their value (single busts lose 27%). That's almost 50% better performance than in a bull market.

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-- Thomas Bulkowski

See Also

 

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My novels:  Bumper's Story Head's Law

Chart Patterns: After the Buy Getting Started in Chart Patterns, Second Edition Trading Basics Fundamental Analysis and Position Trading Swing and Day Trading Visual Guide to Chart Patterns Encyclopedia of Candlestick Charts Trading Classic Chart Patterns

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