Ticker&TapeThe double bottom
A double bottom looks like the letter W. The stock falls, bounces, falls again to a slightly lower low and then rallies. That second dip scares out the last weak holders.
What it looks like
After a prior advance, the stock corrects to a first low. It bounces partway up, forming the middle peak of the W, then sells off again. The key detail is that the second low goes slightly below the first one. That is called an undercut.
From the second low, the stock rallies back up through the middle peak. That is the breakout.
Why the undercut matters
Many traders place stops just below an obvious low. When the stock dips under the first low, those stops are triggered and nervous holders sell. This is called a shakeout. Once those sellers are gone, the stock has fewer people left who want out.
A second low that holds well above the first is not a true double bottom in this method. It can still work, but it has not done the cleanup that the undercut provides.
The rules
A sound double bottom meets these guidelines:
- Prior uptrend of at least 30%.
- Length: at least 7 weeks.
- Depth: usually 20% to 30%, up to 40% to 50% in a bear market.
- Undercut: the second low is slightly lower than the first, often by a few percent.
- Pivot: the high of the middle peak of the W, plus $0.10.
- Optional handle: some double bottoms form a short handle near the middle-peak level; then the handle high is the pivot.
How to trade it
Mark the middle peak with the horizontal level tool and set a price alert just above it. When the stock clears that level on volume at least 40% to 50% above average, it is breaking out. Buy within 5% of the pivot and place your stop no more than 7% to 8% below your entry.
Watch the volume on the second low. Heavy volume as the stock undercuts, followed by a quick recovery, is a sign that the shakeout worked and buyers absorbed the selling.
How it appears on Ticker&Tape
The platform does not have a separate double bottom label. It classifies every base by depth and handle, so a W of 20% to 30% usually shows as a cup or a cup with handle, and its pivot is set at the left-side or handle high.
That pivot can sit higher than the middle peak of the W. If you trade the double bottom, draw the middle-peak level yourself and use it as your pivot, then compare it with the platform's pivot to see where resistance remains.
The rules of a double bottom
| Prior uptrend | At least 30% |
|---|---|
| Length | At least 7 weeks |
| Depth | Usually 20% to 30%, up to 50% in a bear market |
| Shape | W: second low undercuts the first |
| Pivot | Middle peak of the W + $0.10 (or handle high if a handle forms) |
| Buy zone | Pivot to 5% above |
| Breakout volume | At least 40% to 50% above the 50-day average |
Common mistakes
- Calling it a double bottom when the second low holds above the first.
- Using the left-side high as the pivot instead of the middle peak.
- Buying on the way down to the second low, before the stock proves itself.
Key points
- A double bottom is a W where the second low undercuts the first.
- The undercut shakes out weak holders before the advance.
- The pivot is the middle peak plus $0.10; draw it yourself on the chart.
Check what you learned
Answer at least 2 of 3 correctly to complete the lesson.
1. What makes a W pattern a true double bottom in this method?
The undercut triggers stops below the first low and shakes out nervous holders. A second low well above the first has not done that cleanup.
2. With no handle, where is the pivot of a double bottom?
The breakout comes when the stock rallies back through the middle peak, so that level plus $0.10 is the pivot.
3. Why should you draw the double bottom pivot yourself on Ticker&Tape?
There is no separate double bottom label. Draw the middle-peak level yourself and compare it with the platform's pivot.
Open a chart → Try it on Ticker&Tape