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Double bottom
Quick definition
Copy link to sectionA double-bottom base is a price consolidation that follows a strong runup by a stock.
Key details
Copy link to section- A double bottom is a support level that is rejected two times.
- Double-bottom bases stand out because they’re shaped differently than the rest, resembling the letter W.
- A double-bottom base allows a stock to shake out less committed investors, clearing the decks for a powerful breakout and a surge to new high ground.
What Is a Double-Bottom Base?
Copy link to sectionLike 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.
What Are the Stages of a Double-Bottom Base?
Copy link to sectionAs 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.
What Are the Prerequisites of a Double-Bottom Base?
Copy link to sectionOne of the most important traits of 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.