Double-Bottom Base

In our last lesson, we learned all about saucer-with-handle bases, the cousin of cup-with-handle bases. The next lesson deals with a completely different-shaped base, albeit one that can also deliver gigantic gains: the double-bottom base.

I. What Is a Double-Bottom Base?

Like all bases, a double-bottom base is a price consolidation that follows a strong runup by a stock. Double-bottom bases stand out because they’re shaped differently than the rest, resembling the letter W. 

II. Why Is a Double-Bottom Base Important for Investors?

Even the most winning stocks of all time needed to take a break every so often. A double-bottom base gives a stock the opportunity to shake out less committed investors, clearing the decks for a powerful breakout and a surge to new high ground.

It’s at that breakout point that you should strike. Look for a big price gain in heavy volume to confirm that breakout, then jump in.

III. What Are the Stages of a Double-Bottom Base?

As with any base, the action starts with a big prior uptrend, usually highlighted by a gain of 30% or more. The next step is for the stock to start dropping. Whereas cup-with-handle and saucer-with-handle bases might see a more gradual downturn (hence the rounded silhouette of those two bases), a double-bottom typically includes a sharper decline, forming that first part of the stock’s characteristic W shape.

Continuing to follow the shape of a W, the stock will then start to ramp back up, typically more sharply and quickly than you’d see in a cup-with-handle or saucer-with-handle base. It will then turn right back around and start falling again. 

The final stage resembles the right side of that W. When the stock surges past the midpoint of the base (the middle of the W), that’s your breakout, and your time to buy.

IV. What Are the Prerequisites of a Double-Bottom Base?

One of the most important traits in a successful double-bottom is that the second leg down in the base should undercut the first. That’s the ever important shakeout of sellers you want to see before the stock is ready to roll again. The ideal buy point is 10 cents above the middle of the W shape.

If these double-bottom traits sound esoteric, keep in mind that decades of market research confirm that double-bottom bases appear among great stocks in every bull market. These specific double-bottom characteristics are the ones that have led to the biggest gains.

Moving on…

That was your lesson on double-bottom bases, which are easy to remember if you just visualise the W as standing for Winner. Ready for the next lesson, on flat bases? Click below to proceed. Not yet ready? That’s OK. Read through some of the other articles on our site to get a better feel for how bases and other bullish technical indicators can show you the way to big gains.