A double bottom pattern is a bullish patterns. It consists of two valleys or support levels. The price increases quickly or gradually after the first support level is formed. After that, the price returns to the first support level, which holds that first support level, thus creating the double bottom. Look for the price to hold support areas and rise to confirm a bullish continuation.
A double bottom pattern consists of several candlesticks that form two valleys or support levels that are either equal or near equal height. Typically, when the 2nd peak forms, it cannot break above the first peak and causes a double top failure. They are common patterns that can be found on any chart.
Double bottom patterns describe a stock drop, followed by a rebound, and then another drop to the same support level. This gives it the W look.
Double Bottom Pattern Basics
Thus, the twice-touched low is now seen as a key level of support. They can be found in any chart’s time frame. As with most chart patterns, these work best over a longer time-view.
Many potential double bottoms can form and then break down along the way. Unless key resistance is broken, the reversal cannot be confirmed. Sometimes, this is a moving average, an angular resistance, or a technical indicator.
As with any reversal pattern, there has to be a strong trend in place to reverse. In this case, the double bottom is a bullish reversal pattern; therefore, it must be in a downtrend.
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Double Bottom Pattern Technicals
The first trough forms at the lowest point of the current trend. That is why having a strong trend in place is important for this pattern and that it is happening at the bottom of the trend, hence the name and the lows.
The first low should be at least the same as previous lows. This way, it does not raise a red flag among traders.
After the first low forms, a correction takes place. The bulls are increasing buying pressure and volume to increase the price, even though the bears are still in control.
Sometimes, the peak’s high can be round or drawn out instead of that sharp move up. The round high is hesitation to go back down.
This hesitation shows that demand for the stock is increasing. Traders are becoming more interested in it; however, it must still be stronger for the breakout.
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The Second Trough
The second trough of the double bottom is formed when the price declines after the reaction high. This usually occurs with low volume and goes back to the support level created by the previous low.
Next, the bears come back in, not ready to give up control of the trend yet. They test support to see if it will hold.
Notably, exact troughs on double bottom patterns are ideal; if it is not exact, it must be close. It is important to remember that not every trend will be picture-perfect.
The essence of the pattern is more important than the textbook look. Patterns on real-world charts shape up differently.
Trading Double Bottom Patterns
- Watch for the fall of 1st valley
- Next, watch for the price to move up either quickly or slowly
- Then, watch for price action to fall again to the previous valley area
- Watch if the price can break down below the previous support level
- Traders take a long once the price breaks above the neckline of the two valleys
- Place stop at the bottom of the 2nd valley
- Some traders take a long position once 2nd valley holds support near 1st peak.
- Place stop below the 2nd valley
Volume and Resistance Break
Volume is more important on double bottom patterns than on double-top patterns. There needs to be clear evidence of volume and buying pressure increasing. Sometimes, gap-up patterns form, indicating a change in trend is about to happen.
As the price moves back up, it is heading to test resistance. The highest levels of the troughs form resistance. The price needs to break resistance and hold for the double bottom pattern to be complete and begin the reversal.
Support and resistance are important parts of trading; these are levels traders pay special attention to. Once resistance is broken and holds, it becomes new support levels.
Price may then head down to test this new support level to confirm its validity. This can offer a second chance to close a short position or go long.
Double bottom patterns usually take longer to form than their counterpart. Patience can be a virtue when trading this pattern. As with any pattern, confirmation of the breakout is paramount. The pattern is not complete until the previous reaction high is taken out. As always, wait for confirmation and use the tools to make the best trade available. Do not get discouraged if the stock does not go according to plan; those things happen. The best is to see where/how the plan failed and look for the next possible setup.
Frequently Asked Questions
A double bottom pattern is a bullish pattern. It forms a 'W' pattern and signals a bullish breakout once the price breaks the neckline of the 'W'.
The double bottom pattern is a reversal pattern that signals a bullish breakout is about to happen. It shows two distinct equal bottoms, which means support is holding. Traders look to enter a long position as the price breaks above the top of resistance.
The success rate of a double bottom pattern is 78.55% if the setup is solid. Patterns fail at times so it's important to have risk management strategies in place.