Double Bottoms & Triple BottomsTechnical Analysis
Double Bottoms are also called “W’s” in common parlance. They are reversal patterns that occur at the end of downtrends, and create buy opportunities. They feature two consecutive troughs (two swing lows) that are at approximately equal depths with a peak between them. Double Bottoms do not have to be exactly equal. After the second trough, price should rise above the peak between them, completing the pattern and falling.
The high risk entry trigger for a purchase is after the swing low of the second trough. Low risk entry for a long purchase is after price rises above the middle peak. The stop goes below the lowest trough.
Volume on the second trough should be lower than the volume on the first trough. Volume should expand during the rise from the second trough, and rise strongly after price exceeds the middle peak.
A triple bottom has a third trough or swing low, but is otherwise the same. Enter on the third trough in a triple bottom for high risk trade with greater reward, or at the breaking of the middle troughs for a lower risk entry with lower reward. Exact troughs are not required, and the highest peak should be considered as the most important resistance level. The stop is below the lowest trough.
For Targets, Measure the distance from the troughs to the middle peak. Project that distance up from the middle peak when price rises above the peak upwards. Watch for swing highs near that level to take profit, price may stop beyond or fall short of that distance.
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