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Double Bottom and Double Top

Double Bottom

The Double Bottom pattern marks the reversal of a prior downtrend. The price forms two distinct lows at roughly the same price level. For a more signicant reversal, look for a longer period of time between the two lows. Volume reflects a weakening of the downward pressure, tending to diminish as the pattern forms, with some pickup at each low, lesson the second low. Finally the price breaks out above the highest high to conrm the BULLISH signal. Strong volume on breakout is always a good sign. The Double Top is the bearish counterpart, marking the topping out of an uptrend and initiation of a downtrend.

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Double Top

A high-volume Top is formed, followed by a reaction (of at least 15%) on diminishing activity. Another rally back to the previous high
(plus or minus 3%) is made, but on lower volume than the first high. A decline through the low of the reaction confirms the Reversal. The two highs should be more than a month apart. Minimum Measuring Formula: add to the breakout point the distance from the highest peak to the low of the reaction. Also called an “M” Formation.

Source: Edwards, Robert and Magee, John. Technical Analysis of Stock Trends 9th Edition; (c) 2007.

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