Prior trend

There must be a trend on the market to talk about a such pattern. In the case of Double Bottom, it must be a massive inclining trend for a few months.

• Role: Reversal
• Expected trend: Bullish
• Previous tren: Bearish
• Reliability: High
• Pattern: Double Bottom

Double Bottom Example

First trough

The first trough is the lowest point of the current trend. At this point, it may seem like the trend is going to continue.

Peak

There is a pullback high after the first trough. This pullback is between 10% and 20%. The trading volume has no interpretation yet. This period can last relatively long, indicating a strong, increasing demand.

Second through

Around the trough, the trading volume is low. The two troughs are remarkably separated. The second minimum point develops with low trading volume. The share price does not reach the previous bottom’s price, it is usually 3% higher. The time between the two bottoms can last from a few weeks up to 3 months. In some cases, more troughs can form.

Advance from trough

During the share price increase, the trading volume also increases. There might be one or two gaps.

Breaking the resistance line

It cannot be a Double Bottom unless the share price touches the resistance line. The pattern is complete when the price rises above the neckline with large trading volume. Minimum 2 trading days and a 2% distance from the neckline is needed for a confirmation.

Support from resistance

The broken resistance line becomes a support line. The share price will come back to this line several times. These movements give opportunity to close short positions and open long positions.

Target price

The price target is the difference between the neckline and the top line of the larger top. It should be placed on the breakout point. The larger the formation, the bigger the chance for a reversal.