A double bottom pattern is a charting pattern used in technical analysis that denotes a shift in trend and a change in momentum from earlier leading price action.
It represents the decline of a stock or index, the subsequent recovery, the subsequent decline to the same or a somewhat lower level, and the subsequent rebound.
The double bottom resembles the letter "W" in shape. A support level is the low that has already been touched twice.
According to the majority of technical analysts, the initial bottom should increase by 10 to 20%. Within 3 to 4% points of the previous low, the second bottom should develop, and the volume of the subsequent rally should rise.
A double bottom pattern, like many other chart patterns, is best used to examine a market's intermediate- to long-term trends.
In general, the likelihood that a chart pattern will be effective increases with the distance between the pattern's two lows.
The double bottom pattern's lows are thought to need to be at least three months long in order for the pattern to have a higher chance of succeeding.
Therefore, it is preferable to utilize daily or weekly data price charts while looking for this specific pattern in the markets.
Even while the pattern might be visible on intraday price charts, it can be quite challenging to determine whether or not the double bottom pattern is indeed true when using intraday data price charts.
A large or minor downtrend in a particular investment is always followed by a double bottom pattern, which marks the conclusion of the trend and the start of a potential uptrend.
As a result, the pattern should be supported by market fundamentals for the security in question as well as for its sector, the market as a whole, and other relevant variables.
The fundamentals should depict the traits of an impending market condition reversal. Additionally, it's important to keep a close eye on the volume as the pattern takes shape.
Typically, the two upward price moves in the pattern are accompanied by an increase in volume. These volume increases provide as additional proof of a successful double bottom pattern and are a clear sign of upward price pressure.
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, 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 that are conducive to a reversal.
At double the stop loss amount above the entry price, a profit objective should be set.
The reverse of double bottom patterns are double top patterns. Two rounded tops that follow one another create a double top pattern. The first rounding top creates an inverted U pattern.
Rounding tops frequently appear after a prolonged bullish rise, which makes them a good sign for a bearish reversal. Similar conclusions will be drawn from double tops.
In the event of a double top, the second rounded top will typically peak at a lower elevation than the first, signifying resistance and tiredness.
Rare as they may be, double tops frequently signify that investors are trying to cash in on a bullish trend's remaining gains.
Double tops frequently result in a bearish reversal where traders can make money by offloading the stock during a downward trend.
