Glossary
Double Bottom
A bullish reversal pattern of two troughs at about the same price, completed when price rises above the peak between them.
A double bottom is a chart pattern shaped like the letter W. After a decline, price falls to a low, bounces, slides back to roughly the same low, and then climbs again. Technical traders read the second test of the low as evidence that sellers could not push the price lower, and treat the pattern as a possible end to the Downtrend.
Anatomy of the pattern
- A prior decline, without which there is nothing to reverse.
- The first trough, often on heavy selling.
- The middle peak, a rally whose high becomes the "neckline".
- The second trough, near the first, ideally on lighter volume.
- Confirmation: a close above the neckline. Until then, the pattern is only a possibility.
How reliable is it?
Like every chart pattern, the double bottom fails often. A second low that breaks well below the first turns the setup into a continuation of the decline. Breakouts on thin volume, or into heavy overhead Resistance, frequently fall back below the neckline. Results also vary with how strictly the pattern is defined: how close the two lows must be, how far apart in time, and how deep the middle rally. The target is a rule of thumb, not a forecast, and testing the specific definition on the market you trade, with Backtesting, is the only way to learn how it behaves there.
The bearish counterpart is the Double Top, and the mirror logic applies.