The Double Bottom Chart pattern is a bullish reversal pattern. This pattern is created when a key price support level on a chart is tested twice with a rally between the two support level tests.
- A double bottom chart pattern happens at the end of a downtrend that has likely gone on for weeks maybe months.
- The first bounce off support where price stops going down is the first support level.
- The first bounce and reversal in the downtrend is small and the short term run up usually about 5% to 10% off the support lows.
- The first rally off the lows falls and price returns to the previous support.
- The previous price support lows hold on the second test.
- The second test of support must be confirmed by a reversal and trend it is only a potential pattern until support holds and price rallies off the support with higher volume and sometimes a gap up in price.
- A break over the middle high price point between the double bottom is a full confirmation of the double bottom reversal pattern.
- A double bottom chart pattern can take weeks and even months to play out with the middle rally resistance taking many different sizes and shapes.
This is one way to locate high probability dip buys after an extended downtrend in price. It also gives you a way to quantify your stop loss if you choose to take the dip buy off the second support level or buy a trend line breakout. Setting a stop loss under the second support level or one of the trend line breaks.