What Does a Double Bottom Tell You?

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Most market watchers predict a 10–20% decline before the first bottom is reached. Within 3%-4% of the last low, a second bottom should emerge, and subsequent gains should see higher volumes.

Similar to many other chart patterns, the double bottom is most useful when looking at the market in the intermediate to long term. More time must pass between the pattern's lows to increase its odds of success. For the double bottom pattern to have a higher chance of success, the lows should be separated by at least three months. If you're looking for this pattern in the markets, then you should utilize daily or weekly price data charts. In spite of the fact that the double bottom pattern may be seen on intraday price charts, its reliability is questionable due to the imprecision of the data.

Always after a downtrend, whether large or small, the double bottom pattern heralds a possible turnaround and the start of an upswing. Market fundamentals for the security, the industry to which the security belongs, and the market as a whole should all corroborate the trend. An impending market turnaround should be reflected in the underlying fundamentals. In addition, volume needs to be watched carefully as the design takes shape. During the pattern's two price increases, volume tends to increase sharply. Such a rise in volume is indicative of rising demand, which in turn strengthens the case that the double bottom pattern was a success.

A long position should be taken at the price level of the high of the first rebound, with a stop loss at the second low in the pattern when the closing price is in the second rebound and is approaching the high of the first rebound of the pattern and a discernible expansion in volume is currently coupled with fundamentals that indicate market conditions that are conducive to a reversal. Two times the value of the stop loss should be set as the profit objective above the entry price.
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