Double Bottom Definition

What is a Double Bottom?

A double bottom pattern is a technical analysis charting pattern that
describes a change in trend and a momentum reversal from prior leading
price action. It describes the drop of a stock or index, a rebound, another
drop to the same or similar level as the original drop, and finally
another rebound. The double bottom looks like the letter "W". The twice-
touched low is considered a support level.

KEY TAKEAWAYS
 The double bottom looks like the letter "W". The twice-touched low is
considered a support level.
 The advance of the first bottom should be a drop of 10% to 20%,
then the second bottom should form within 3% to 4% of the previous
low, and volume on the ensuing advance should increase.
 The double bottom pattern always follows a major or minor
downtrend in a particular security, and signals the reversal and the
beginning of a potential uptrend.

As with many chart patterns, a double bottom pattern is best suited

for analyzing the intermediate- to longer-term view of a market.
Generally speaking, the longer the duration between the two lows in
the pattern, the greater the probability that the chart pattern will be
successful. At least a three-month duration is considered appropriate
for the lows of the double bottom pattern, in order for the pattern to
yield a greater probability of success. It is, therefore, better to use
daily or weekly data price charts when analyzing markets for this
particular pattern. Although the pattern may appear on intraday price
charts, it is very difficult to ascertain the validity of the double bottom
pattern when intraday data price charts are used. The double bottom
pattern always follows a major or minor down trend in a particular
security, and signals the reversal and the beginning of a potential
uptrend.
A spike in volume typically occurs during the two upward price
movements in the pattern. These spikes in volume are a strong
indication of upward price pressure and serve as further confirmation
of a successful double bottom pattern.

What Is Double Top and Bottom?

Double top and bottom patterns are chart patterns that occur when the underlying investment moves in a
similar pattern to the letter "W" (double bottom) or "M" (double top). Double top and bottom analysis is used
in technical analysis to explain movements in a security or other investment, and can be used as part of a
trading strategy to exploit recurring patterns.

KEY TAKEAWAYS
 Double tops and bottoms are important technical analysis patterns used by traders.
 A double top has an 'M' shape and indicates a bearish reversal in trend.
 A double bottom has a 'W' shape and is a signal for a bullish price movement.
Understanding Double Tops and Bottoms
Double top and bottom patterns typically evolve over a longer period of time, and do not always present an
ideal visual of a pattern because the shifts in prices don't necessarily resemble a clear "M" or "W". When
reviewing the chart pattern, it is important for investors to note that the peaks and troughs do not have to
reach the same points in order for the "M" or "W" pattern to appear.

Double top and bottom patterns are formed from consecutive rounding tops and bottoms. These patterns
are often used in conjunction with other indicators since rounding patterns in general can easily lead
to fakeouts or mistaking reversal trends.

Double Top Pattern

A double top pattern is formed from two consecutive rounding tops. The first rounding top forms an upside-
down U pattern. Rounding tops can often be an indicator for a bearish reversal as they often occur after an
extended bullish rally. Double tops will have similar inferences. If a double top occurs, the second rounded
top will usually be slightly below the first rounded tops peak indicating resistance and exhaustion. Double
tops can be rare occurrences with their formation often indicating that investors are seeking to obtain final
profits from a bullish trend. Double tops often lead to a bearish reversal in which traders can profit from
selling the stock on a downtrend.

What Is a Double Top?

A double top is an extremely bearish technical reversal pattern that forms after an asset reaches a high price
two consecutive times with a moderate decline between the two highs. It is confirmed once the asset's price
falls below a support level equal to the low between the two prior highs.

Double Bottom Pattern

Double bottom patterns are essentially the opposite of double top patterns. Results from this pattern have
the opposite inferences. A double bottom is formed following a single rounding bottom pattern which can
also be the first sign of a potential reversal. Rounding bottom patterns will typically occur at the end of an
extended bearish trend. The double bottom formation constructed from two consecutive rounding bottoms
can also infer that investors are following the security to capitalize on its last push lower toward a support
level. A double bottom will typically indicate a bullish reversal which provides an opportunity for investors to
obtain profits from a bullish rally. After a double bottom, common trading strategies include long positions
that will profit from a rising security price.
KEY TAKEAWAYS
 The double bottom looks like the letter "W". The twice-touched low is considered a support level.
 The advance of the first bottom should be a drop of 10% to 20%, then the second bottom should
form within 3% to 4% of the previous low, and volume on the ensuing advance should increase.
 The double bottom pattern always follows a major or minor downtrend in a particular security, and
signals the reversal and the beginning of a potential uptrend.