Double Bottom (Technical Analysis)
A double bottom is a chart pattern that signals a potential reversal from a downtrend to an uptrend. It looks like a “W”: price makes a low, rebounds, returns to a similar low, then rebounds again. When validated, it indicates a significant support level has held and buying pressure may be returning.
Key takeaways
- Indicates a possible shift from downtrend to uptrend; visually resembles a “W.”
- Formed by two lows at approximately the same level separated by a rebound (the intermediate high).
- Best identified on daily or weekly charts; longer time between lows increases reliability.
- Confirmation comes from rising volume on the upward moves and improved fundamentals.
- Typical measured minimum price target equals the distance from the lows to the intermediate high (often ~10%); a more aggressive target can be twice that distance.
- Invalidation occurs if price falls below the double bottom lows.
How the pattern forms
- A security is in a downtrend and makes a low (first bottom).
- Price rebounds to an intermediate high (the middle of the “W”).
- Price declines again to a level near the first low (second bottom), testing support.
- A subsequent rebound that breaks above the intermediate high signals a potential reversal.
Confirmation and indicators
- Volume: Look for volume spikes during the two upward moves, especially on the breakout above the intermediate high—this supports the validity of the reversal.
- Fundamentals: Positive changes in company, sector, or market fundamentals increase the likelihood the pattern will lead to a sustained uptrend.
- Timeframe: Use daily or weekly charts. Longer intervals between the two lows generally improve reliability.
Trading rules of thumb
- Entry: Consider entering on a daily close above the intermediate high (the middle peak).
- Stop loss: Place a stop below the second bottom (or slightly below the pattern low).
- Price target: Measure the vertical distance from the lows to the intermediate high and add that distance to the breakout point. A conservative target ≈ this distance; an aggressive target ≈ twice the distance.
- Invalidation: A decisive break below the double bottom lows suggests the downtrend may continue.
Practical notes and FAQs
- Do the two lows have to be identical? No. They should be close—typically within about 3% to 4% of each other. A slightly higher second low can be a bullish sign (selling pressure easing).
- How large is the expected rebound? Often 10%–20% after the second low if the pattern holds, but more upside is possible when fundamentals improve.
- Where is the pattern most useful? For intermediate-to-long-term analysis; it is less reliable on very short intraday charts.
Example (summary)
In a typical case, a stock in a downtrend makes a sharp first low, rebounds ~10%, then tests the low again to within a few percent. If volume expands on the subsequent rally and price closes above the intermediate high, the double bottom is confirmed and a new uptrend may be beginning. If price drops below the prior lows instead, the pattern is invalidated.
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Bottom line
A double bottom is one of the more reliable reversal patterns when identified on daily or weekly charts and confirmed by volume and improving fundamentals. Use the breakout above the intermediate high for entry, set a stop below the second low, and size price targets by the distance between the lows and the middle high.