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Double Bottom Reversal

时间:2019-5-21 00:18 1 22 | 复制链接 |

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Double Bottom Reversal
The Double Bottom Reversal is abullish reversal pattern typically found on bar charts, line charts, andcandlestick charts. As its name implies, the pattern is made up of twoconsecutive troughs that are roughly equal, with a moderate peak in-between.
Note that a Double Bottom Reversalon a bar or line chart is completely different from Double Bottom Breakdown ona P&F chart. Namely, Double Bottom Breakdowns on P&F charts are bearishpatterns that mark a downside support break.
United Technologies Corp. (UTX)Double Bottom Reversal example chart from StockCharts.com
Although there can be variations,the classic Double Bottom Reversal usually marks an intermediate or long-termchange in trend. Many potential Double Bottom Reversals can form during adowntrend, but until key resistance is broken, a reversal cannot be confirmed.To help clarify, we will look at the key points in the formation and then walkthrough an example.
Prior Trend: With any reversalpattern, there must be an existing trend to reverse. In the case of the DoubleBottom Reversal, a significant downtrend of several months should be in place.
First Trough: The first troughshould mark the lowest point of the current trend. As such, the first trough isfairly normal in appearance and the downtrend remains firmly in place.
Peak: After the first trough, anadvance takes place that typically ranges from 10 to 20%. Volume on the advancefrom the first trough is usually inconsequential, but an increase could signal earlyaccumulation. The high of the peak is sometimes rounded or drawn out a bit fromthe hesitation to go back down. This hesitation indicates that demand isincreasing, but still not strong enough for a breakout.
Second Trough: The decline off ofthe reaction high usually occurs with low volume and meets support from theprevious low. Support from the previous low should be expected. Even afterestablishing support, only the possibility of a Double Bottom Reversal exists,and it still needs to be confirmed. The time period between troughs can varyfrom a few weeks to many months, with the norm being 1-3 months. While exacttroughs are preferable, there is some room to maneuver; typically, a troughwithin 3% of its predecessor is considered valid.
Advance From Trough: Volume ismore important for the Double Bottom Reversal than the double top. There shouldbe clear evidence that volume and buying pressure are accelerating during theadvance off of the second trough. An accelerated ascent, perhaps marked with agap or two, also indicates a potential change in sentiment.
Resistance Break: Even aftertrading up to resistance, the double top and trend reversal are still notcomplete. Breaking resistance from the highest point between the troughscompletes the Double Bottom Reversal. Like advances, these should occur with anincrease in volume and/or an accelerated ascent.
Resistance Turned Support: Brokenresistance becomes potential support and there is sometimes a test of thisnewfound support level with the first correction. Such a test can offer asecond chance to close a short position or initiate a long.
Price Target: The distance fromthe resistance breakout to trough lows can be added on top of the resistancebreak to estimate a target. This would imply that the bigger the formation is,the larger the potential advance.
It is important to remember thatthe Double Bottom Reversal is an intermediate to long-term reversal patternthat will not form in a few days. Even though formation in a few weeks is possible,it is preferable to have at least 4 weeks between lows. Bottoms usually takelonger to form than tops; patience can often be a virtue. Give the pattern timeto develop and look for the proper clues. The advance off of the first troughshould be 10-20%. The second trough should form a low within 3% of the previouslow and volume on the ensuing advance should increase. Volume indicators suchas Chaikin Money Flow, OBV and Accumulation/Distribution can be used to lookfor signs of buying pressure. Just as with the double top, it is paramount towait for the resistance breakout. The formation is not complete until theprevious reaction high is taken out.


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zcy789 发表于 2019-5-21 10:39:34 | 显示全部楼层 | 举报

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