The Double Bottom Pattern
Double Bottom Summary, Psychology, Key Points, and Examples
The Double Bottom is one of the most common chart patterns. The shape represents an uneven W with the second low always undercutting the first low. Price pulls back and makes the first low, reverses, and trends upward until it hits resistance, then the stock pulls back again but this time undercutting the first pullback. The stock then heads up towards its resistance which is where the middle of the W is.
The peak in the middle of the W is your resistance that you are looking to break after you come around from the second low. To find the official buy point you add 10 cents to that resistance. When price breaks through the resistance you want the volume to be running above average for a higher chance of success.
The double bottom pattern is formed over a minimum of 7 weeks and after a prior uptrend of at least 30%. The depth of the base from the peak of the prior uptrend to the bottom of the second low should be 40% or less.
This pattern is generally formed during volatile conditions which you can clearly see by the shape of the pattern. The purpose of the second low in the double bottom is to shake out investors by undercutting the first low before it is ready to officially breakout. This gets rid of any weak hands, only leaving room for more long-term investors. If the second low doesn’t undercut the first low, this is not a double bottom and is failure-prone because weak hands are still occupying their positions.
- The double bottom is a bullish continuation pattern.
- Prior uptrend 30% or more
- Formed over a minimum of 7 weeks.
- Base Depth of less than 40%
- The pattern commonly forms in volatile environments
- Volume should be running above average on the breakout. (30-40%)
- The second low must undercut the first low
- Optimal Buy Point is 10 cents above the middle peak in the W