What Is a W Double Bottom Pattern and How to Profit from It?

Overview

The purpose of this post is to examine the double bottom chart pattern and show how it can be used for lucrative trading.

The W chart pattern, a double bottom, is a bullish reversal pattern. It generally emerges near the bottom of a decline or during the corrective phase of an uptrend. It is critical to note that traders must wait for pattern confirmation in order to avoid a false breakout and, as a result, a failed formation. The double bottom bullish reversal pattern is arguably the most reliable chart pattern.

What Is a Double Bottom Pattern?

A double bottom chart pattern is a technical analysis chart pattern that resembles the letter “W” on the chart with a series of dips and rebounds. When prices rise above the highest point of the whole formation, a real double bottom emerges, leaving the entire pattern behind.

SP 500 Example of a W Double Bottom Pattern Renko Chart

If correctly spotted, the double bottom might signal a great entry point for investors, as it indicates that the stock has reached a crucial support level and is having difficulty going down. As a result, it’s reasonable to believe that the lows, or support levels, have been retested and confirmed. This suggests that the stock has reached its bottom and is now poised to rise. The rise from the double bottom formation might be substantial more frequently than not.

It is important to note that waiting for confirmation of a W, double bottom formation is critical in order to avoid making a mistake by jumping the gun and initiating a “buy.” No matter how perfect a double bottom pattern seems, it is only relevant until the price breaks through the neck line and establishes a closing price above it.

Takeaways

Like many other chart patterns, a W, double bottom pattern lends itself ideally to trend analysis. In general, the longer the time span between the pattern’s two lows, the more likely the chart pattern will prevail. This is especially true if the price breaks above the neck line and the closing price confirms the breakout.