doublebottomed

A double bottom is a chart pattern that appears on financial market charts, indicating a potential reversal of a downtrend. It is characterized by two distinct troughs that are roughly at the same price level, separated by a moderate peak. The pattern is considered complete and the reversal confirmed when the price breaks through the resistance level formed by the peak between the two troughs.

The formation of a double bottom suggests that selling pressure, which had been dominant and pushing prices down, is weakening. After the first trough, buyers step in, causing a temporary price increase. However, if the selling pressure reasserts itself, the price may fall again to test the previous low, forming the second trough. The fact that the price fails to break significantly below the first trough on the second attempt indicates that demand is absorbing the supply at that level. The subsequent rally and break above the intervening peak signals a shift in market sentiment from bearish to bullish.

Traders often use the double bottom pattern to identify potential buying opportunities. The confirmation of the pattern, typically a decisive break above the resistance level, can be a signal to enter a long position. The price target for a double bottom pattern is often estimated by measuring the distance from the troughs to the peak and adding that distance to the breakout point. Stop-loss orders are usually placed below the second trough to limit potential losses if the pattern fails and the downtrend resumes.