What Are Double Bottom Patterns?

A double bottom pattern is a technical analysis charting pattern that indicates a change in trend and momentum from earlier leading price action.

It illustrates a stock or index's decline, subsequent recovery, following decline to the same or slightly lower level, and subsequent rebound.

The shape of the double bottom is similar to the letter "W." A support level is the lowest point that has been reached twice.

What Is the Meaning of a Double Bottom?

The bulk of technical analysts believe that the initial bottom should rise by 10 to 20%. The second bottom should form within 3 to 4% of the previous low, and the volume of the succeeding rally should increase.

Like many other chart patterns, a double bottom pattern is best utilized to assess a market's intermediate- to long-term tendencies.

In general, the distance between the pattern's two lows improves the likelihood that it will be effective.

The lows of the double bottom pattern are supposed to need to be at least three months lengthy in order for the pattern to succeed.

As a result, when looking for this exact pattern in the markets, it is advisable to use daily or weekly data price charts.

Even though the pattern may be seen on intraday price charts, determining whether or not the double bottom pattern is real when using intraday data price charts can be difficult.

A significant or minor slump in a specific investment is always followed by a double bottom pattern, indicating the end of the trend and the beginning of a potential uptrend.

As a result, the pattern should be supported by market fundamentals for both the security in question and its sector, as well as the market as a whole, and other relevant variables.

The fundamentals should show signs of a coming market condition turnaround. It's also critical to keep an eye on the volume as the design takes shape.

Typically, the pattern's two upward price moves are accompanied by a rise in volume. These increases in volume provide additional evidence of a successful double bottom pattern and are a strong indication of upward pricing pressure.

Once the closing price is in the second rebound and is getting close to the high of the first rebound of the pattern, and a discernible increase in volume is currently coupled with fundamentals that indicate market conditions conducive to a reversal, a long position should be taken at the price level of the high of the first rebound, with a stop loss at the second low in the pattern.

A profit target should be established at double the stop loss amount above the entry price.

What Is the Difference Between a Double Bottom and a Double Top?

Double top patterns are the inverse of double bottom patterns. A twin top design is formed by two spherical tops that follow one another. An inverted U pattern is created by the initial rounding top.

Rounding tops frequently form after a sustained bullish ascent, indicating a bearish reversal. Double tops will lead to similar conclusions.

When there is a double top, the second rounded top will usually peak at a lower elevation than the first, indicating resistance and exhaustion.

Despite their rarity, double tops typically indicate that investors are attempting to cash in on a bullish trend's remaining gains.

Double peaks typically result in a bearish reversal, which allows traders to profit by selling the stock during a downward trend.