Double Top & Double Bottom Patterns: Indicator, How to Trade

The Nasdaq carved out a double bottom of its own as a September recovery attempt failed, sending stocks to new lows. Price reaches the first peak on increased volume then falls down the valley with low volume. Another attempt on the rally up to the second peak should be on a lower volume. After trending lower for double bottom stock meaning almost a year, PFE formed a Double Bottom Reversal and broke resistance with an expansion in volume. The second low comes after and is followed by a bullish movement. It is important to note that the second bullish movement should be more significant than the first bullish movement to attain a double bottom.

This pattern is formed when a stock or index hits two distinct lows at the same level on separate days. The level to which the price falls twice is considered as the support level. Planet Fitness (PLNT), an August 2015 IPO, proves this point with its strong price run in recent years. Its double-bottom https://www.bigshotrading.info/ base, one of eight VIPs (very important patterns) that investors in growth stocks can master, set up a solid rally that began in February 2018. Additionally, a lack of volume increase during the upward movements might indicate weak buying interest, which could challenge the pattern’s validity.

Spotting the Double Bottom Pattern

Even though various chart patterns help execute profitable trades, it is only the case when these trends are identified correctly. A failed double bottom chart pattern is when the expected direction doesn’t materialize as expected. The neckline or resistance level is the maximum price an asset can achieve over a period in an up-trending market. A double bottom pattern is complete if the price breaks above the neckline, indicating there are more buyers than sellers and that the trend is likely to continue moving higher. Double bottom patterns in the cryptocurrency market signal that the downtrend has reached its bottom, a critical level below which the price will not go. Some secondary market indicators can help investors get a contrarian sense that a major turn is approaching.

The double bottom looks like the letter “W.” The twice-touched low is now considered a significant support level. The double bottom pattern always follows a major or minor down trend in a particular security, and signals a reversal and the beginning of a potential uptrend. The fundamentals should reflect the characteristics of an upcoming reversal in market conditions. Also, volume should be closely monitored during the formation of the pattern. 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 true double bottom pattern.

How to Chart a Double Bottom Pattern

Double bottoms can form a handle, but it’s not necessary for a sound base. Many stocks form double bottoms and shoot straight past the buy point into profitable territory. It’s ideal to see the stock’s volume pick up at least 40% to 50% above its 50-day average at the breakout.

• The daily trading chart above shows a double bottom in the case of an overall downtrend in Advanced Micro Devices (AMD).
• The neckline or resistance level is the maximum price an asset can achieve over a period in an up-trending market.
• This pattern is considered a stronger bullish reversal indicator than the double bottom because the asset has tested the support level multiple times, confirming its strength.
• These patterns can occur in various timeframes and on different assets, including crypto, stocks, forex, and…
• In that respect, it serves a similar use to the handle in a cup with handle base.
• Double bottom patterns are essentially the opposite of double top patterns.