Double bottom

From Traderpedia

When a market or security has twice declined to its support level.

A Double Bottom is a bullish indication of a major reversal at the bottom of a downtrend. In essence when complete it should look similar to a W.

A Double Bottom happens after a stock or index has been in a downtrend. The stock/index will possibly bounce of a level of support and rise to possibly around 10 - 20% of the previous downtrend - this will form the peak of the W. Any hestiation in the stock at this level will indicate that there is buying pressure present, just not enough for it to breakout.

Following this the stock/index will then retrace back down to the level of the previous low on the line of support and this is usually done on lower volume than before. The previous level of support is critical here, as a Double bottom can only be formed if this level holds.

The final part of the formation of a Double Bottom is the advance after retesting the previous level of support. At this point it is critical that this happens on increased volume in order than the movement should be sustained. It is possible that Gaps or 'Rising Windows' may occur at this point as the increased volume makes the stock/index surge ahead.

One thing to remember on this is that on the second retest of the previous level of support, the longer the stock/index consolidates at this level then the greater the power of the potential breakout could be.