- Double Bottom Pattern
A double bottom pattern is a mirror image of the double top. It is a reversal pattern in a down trend signaling a bull trend is coming.
- A prior downtrend sets a new low, usually on higher volume.
- Then, the stock price rallies.
- The price declines again but is unable to fall under the previous low and bounces up again.
- If the price breaks resistance, rallying above the previous peak, a double bottom pattern has formed. (If the price does not break resistance, this might not be a reversal pattern since prices could just be in a consolidation phase, just before it resumes to its original downtrend.)
- After a double bottom pattern has formed, there is a possibility of a return move to the breakout point, but should not decline below it, before prices resume to the new uptrend.)
Volume during a Double Bottom Pattern
In a double bottom pattern, there is usually heavier volume during the first bottom and lighter volume on the second. However, when the price breaks resistance, signaling a reversal to an uptrend, it is important that it occurs on heavy volume.
Example of a Double Bottom Pattern:
Citigroup’s stock just recently formed a double bottom at around $2.80 and rallied up over $4.40, which was yesterday’s close. The stock is now trading at $4.70 so if you bought at the second bottom and sold it now, you would have made a 68% gain!
Double bottom is a very profitable pattern when you buy a stock after seeing the pattern is forming.
