Double Bottom Chart Pattern
The double bottom chart pattern is an easy chart pattern to spot. It looks like the letter W. The pattern can develop over a period weeks, months, or years.
The left side of the pattern shows that the share price has dropped over a period of time, from the high point on the left side of the chart, to the bottom of the chart, where the share price has finally found support. The share price rebounds, just a little, but can’t sustain an upward trajectory, and drops back down to test the support on the bottom of the pattern one more time. This time, when the share price bounces off the bottom of the pattern, the share price continues to rice, over time, in a steady manner, as seen on the right side of the pattern. Over time, all of these moves taken together, create the double bottom pattern, or the letter W, if that helps you see the pattern better.
The reason why the pattern is called a double bottom pattern is because the share price tests ,and bounces off, the bottom level of support two times, and then starts moving higher.
There are two places in the formation of this pattern when it might be smart to enter a position. The first opportunity comes when the share price has bounced of the lower level of support for the second time, and risen above the first level of resistance, as represented by the middle point of the “W” . Wait to see if that taking out of resistance holds, since if it doesn’t, you might be visiting the bottom of the chart pattern again, for a triple bottom. So wait to confirm that the share price isn’t going to back fill again, and drop below support, before you enter the trade. Seasoned traders call this “waiting for confirmation”.
The second opportunity to enter the trade is when the share price on the right side of the chart is level with the top level of resistance on the left side of the chart, that started the chart pattern. Wait for the share price to rise above this level of resistance, and stay there, before entering your trade. But don’t wait too long. Once that top level of resistance falls, it might not get tested again. Why? Because a long-term resistance level has just been taken out, and there is very little overhead volume of shares to keep the share price from moving higher.