The Bullish Double Bottom Pattern
One of the most bullish chart patterns we feature on our site and newsletter is the double bottom pattern. Over the years, many top growth stocks have formed this pattern before taking off. And our first featured trading setup of 2014 was breaking out of this pattern when it appeared in the Daily Alert on January 2nd.
The pattern looks like a W on a chart. You can find smaller patterns on a daily chart and the larger ones are often better seen on a weekly chart. We have found that the weekly patterns are more bullish and normally perform better.
The pattern is self-explanatory in that there are 2 V shaped bottoms. Its more bullish if the 2nd bottom is lower than the first. Sometimes you have a handle that forms after the bounce from the 2nd bottom. Sometimes not.
Here is a great double-bottom pattern we featured at the beginning of 2014 in the Daily Alert.
One great feature of that pattern was how the 2nd leg down in the W pattern had a shallow slope without a sharp pullback to the 2nd low. And the handle (some double bottoms have a handle or horizontal consolidation after the 2nd bottom) also had this same characteristic shallow angle of descent.
The breakout occurs and the entry point is reached when the price closes above the handle or center top point of the W if there is no handle. You want to see the price break out of the pattern on very strong volume and that is what we saw on the first trading day of the year and also a few days later.
Now we do not want to find this setup on an average stock. We only look for this chart pattern on the very best growth stocks in the market as they often perform very well out of this pattern. For instance, the stock we featured at the beginning of 2014 was experiencing triple-digit earnings and sales growth.
Again, this stock quickly more than doubled within a couple months after reaching an ideal technical entry point and being featured in our newsletter. Because the initial move was so strong, it set up the stock for a much larger move in the months ahead. And the stock made a huge move in 2014. Of course, you need to monitor the stock after entering a trade to make sure no sell signals emerge covered in the book.
You can view more information on this stock on our subscription site so you can study success more carefully. The stock is featured in the January 2nd, 2014 newsletter.
The double bottom is definitely one of the patterns you want to look for when trading the top growth stocks in the market. Its a favorite of many top traders and can make you a lot of money.
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what about double tops does this apply on the downside too?
what about double tops does this apply on the downside too?
Great question. The stocks we feature in the Daily and Weekly Alert have the improving fundamentals to hold their price so its more difficult to make money on the downside with them because estimates are still rising. Or they still have strong growth in sales and earnings. We also feature them in a strong long-term uptrend in most cases. You generally want to trade in the direction of the long-term trend. Double tops are good patterns for lesser quality stocks but we don’t focus on those with our strategies. When shorting we focus on stocks in long-term downtrends that are in a bearish pattern such as hitting the top of a downward sloping channel and showing strong signs of turning over again.