Double Bottom Formation
The task for you in this guide will be to identify out of the following three charts which are confirmed double bottoms and why.
Points you should consider:
The peak of the rally between the two peaks MUST be taken out to call the pattern you see a double bottom
There must be a down trend to reverse:
Once you have considered the three charts and established whether you believe they are double bottom formations or not, be sure to check against the audio answers. You will be amazed at how many people confuse double bottoms with reactions from previous lows!
At the end of this lesson we will show you how to measure a double bottom formation to find out how high it should send the share price.
⇑ ⇑ ⇑ ⇑ Double Bottom Formation
The Double Bottom Measuring Technique
There is a way of measuring a Double Bottom formation and identifying what impact that single formation will have on the share price.
The way that we do this can be seen on the chart overleaf. The distance from line “A” to line “B” can be measured, the distance the price travels will be proportionate to the distance from line ‘A’ and line ‘B’.
So the greater the distance between A and B the higher the pattern will send the share price.
There is a very similar technique in the Double Top eguide in which we will look into the measuring technique with more detail.
A measuring technique is a guide –
The techniques we show you are only the first step in reaching a price target. You need to consider:
- Where are the important supports/ resistances which may prevent the price reaching a target.
- Consider the percentage retracements that you will learn about in the next lesson.
- If (for example) your pattern targets 150p per share but there is strong resistance/ sell line at 145p per share then assume the price target is at the sell line. It is good practice to always make allowances for important trend lines