Double-Bottom

A bullish technical chart pattern featuring two consecutive price lows of similar depth, signaling a potential upward reversal.

A double-bottom is a bullish technical chart pattern that signals a potential trend reversal from a downward trajectory to an upward trajectory. Visually resembling the letter 'W', the pattern is formed by two consecutive price lows of roughly equal depth, separated by a temporary peak. The peak's high point establishes a horizontal resistance line known as the neckline. Technical analysts observe the pattern over weeks or months to gauge its validity. The first bottom represents a temporary low point where buying interest halts a decline. The subsequent rally to the neckline is met with selling pressure, pushing the price back down to test the previous low. If buyers step in again at this support level, preventing a deeper decline, the second bottom is established. The pattern is officially confirmed only when the price breaks above the neckline on high trading volume. Investors and traders monitor double-bottoms to identify high-probability entry points for long positions. A common pitfall is entering a trade prematurely before the neckline is broken, as the price may fail to break out and instead resume its downward trend. Additionally, patterns that develop over longer timeframes are generally considered more reliable than those on intraday charts.

A stock in a downtrend falls to $50 (first bottom), rallies to $60 (the neckline), and then drops back to $50.50 (second bottom) before rising again. Once the price breaks above the $60 neckline, the double-bottom pattern is confirmed. The implied price target is calculated by adding the height of the pattern ($60 neckline - $50 low = $10) to the breakout point: $60 + $10 = $70.