What Is The Double Bottom Pattern?
What is the Double Bottom Pattern?
The Double Bottom is one of the most common chart patterns. The shape represents an uneven W with the second low always undercutting the first low. Price pulls back and makes the first low, reverses, and trends upward until it hits resistance, then the stock pulls back again but this time undercutting the first pullback. The stock then heads up towards its resistance which is where the middle of the W is.
The peak in the middle of the W is your resistance that you are looking to break after you come around from the second low. To find the official buy point you add 10 cents to that resistance. When price breaks through the resistance you want the volume to be running above average for a higher chance of success.
The double bottom pattern, just like the cup and handle pattern, is formed over a minimum of 7 weeks and after a prior uptrend of at least 30%. The depth of the base from the peak of the prior uptrend to the bottom of the second low should be 40% or less.
Double Bottom Pattern Characteristics
- The double bottom is a bullish continuation pattern.
- Prior uptrend 30% or more
- Formed over a minimum of 7 weeks.
- Base Depth of < 40%
- The pattern commonly forms in volatile environments
- Volume should be running above average on the breakout. (30-40%)
- The second low must undercut the first low
- Optimal Buy Point is 10 cents above the middle peak in the W
Double Bottom Pattern Psychology
This pattern is generally formed during volatile conditions which you can clearly see by the shape of the pattern. The purpose of the second low in the double bottom is to shake out investors by undercutting the first low before it is ready to officially breakout. This gets rid of any weak hands, only leaving room for more long-term investors.
If the second low doesn’t undercut the first low, this is not a double bottom and is failure-prone because weak hands are still occupying their positions.
Try our free position size calculator to help determine how many shares to buy.
Double Bottom Pattern Success Rate
The success of a Double Bottom pattern depends on various factors. These include market volatility, market direction, trading volume, and the time frame of the pattern's formation. This pattern has a higher success rate if there's a rise in volume at the the breakout. To increase the likelihood of success volume during the breakout should be 30% or more above average. This increase signals strong buyer interest. Additionally, double bottom patterns that take longer to form are also usually more reliable than shorter ones.
What is the Shake Out +3 Early Entry Technique?
Shake Out +3 is a trading technique for early entry, helping traders profit from the double bottom pattern sooner than usual. It's based on the strategies of famous trader Jesse Livermore. The technique involves entering the trade when the price increases by about three points from the first low, accompanied by high volume.
Shake Out +3 Rules?
The entry point can vary with the stock price. Generally, aim for about 10% above the first low, but no more than six points. For a $30 stock, use Shake Out +3. For a $100 stock, Shake Out +6 might be more appropriate. The crucial factor is a significant rise from the first low, indicating demand and a likelihood of price increase.
Why Shake Out +3 is Effective:
Shake Out +3 allows for early entry, which can lead to higher profits. It offers a safety net against potential pullbacks after the traditional breakout point because you have a much larger cushion. This strategy is valuable for traders looking to maximize their position by acting on early signs of demand.
Double Bottom Pattern Examples
Click on an image below to expand the chart.
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