A Double Bottom is a form of chart pattern used in technical analysis. This pattern is characterized by a distinct drop in price, followed by a slight reversal (or recovery) with a second drop occurring soon after to either the same or similar level as the first, before another, significant recovery so that the chart appears to take on the form of the letter ‘W’.
The Double Bottom, along with its counterpart, the Double Top, is easily one of the most recognizable chart patterns. While both are reliable [http://www.babypips.com/school/reversal_patterns.html reversal patterns], highly indicative of chances in the market, the bullish Double Bottom reflects very strong levels of support and often indicates a strong change of trend.
The double low points are considered to be support levels, with the resistance level measured at the widest point of the ‘W’ formation. When the rise following the second low breaks the resistance point generally the rise will continue sharply, with these reversal trends garnering more reward following extended downtrends.
It is normally considered that the best entry point on a double bottom formation is around the secondary resistance level, which when broken tends to indicate a the confirmation of the price reversal.« Back to Glossary Index