The double bottom is a bullish pattern indicated by a W shape. The two bottoms will succeed, mirroring an important support (in green). This will mark a reversal will. The pattern may also be in a WV shape. We’ll discuss a triple bottom.
Showing the double bottom below, the area of support will let the price rebound twice. The first will determine the neck line (in red), illustrated by the highest between the two bottoms. Furthermore, the price should get back to the support. The magnitude of the two bottoms is often the same (as indicated below), however it could happen that the first bottom is lower than the first. This configuration strengthens the validity of the figure since it reflects a breathlessness of the selling movement. Another rebound will then occur, but the breaking of the neck line that will validate this bullish reversal.
Once the neck line breaks, it might happen that the price will get back to it (this line then becomes support), then increases once again. The possibility of increase is decided upon by the difference between the beginning support and the neck line (noted by the black arrows).
Here are some statistical facts about the double bottom:
– In 70% of cases, there is a bullish reversal.
– In 67% of cases, the target of the pattern is reached once the neckline is broken.
– In 59% of cases, a pull back occurs.
– In 97% of cases, there is a pursuit of the movement once the neckline is broken.
They are several types of double bottom that are differentiated according two criteria.
The shape of the bottom can be a V-shape (known as Adam bottom) or a U-shape (called an Eve Bottom).
The second bottom might be higher, at maybe the same or lower than the first bottom.
In case of pull back, the upward movement will not be as important once the target of the pattern reached.
More the two bottoms are close, more the percentage of success of the pattern is vital.
The bearish movement that precedes the formation of the double bottom is important, more the upward movement at the breakout of the neckline will be powerful.