V.16:2 (99-105): Double Bottoms by Thomas Bulkowski

V.16:2 (99-105): Double Bottoms by Thomas Bulkowski
Item# \V16\C02\015DOUB.PDF
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Double Bottoms by Thomas Bulkowski

The mirror image of a double top, the double bottom is a more profitable longer-term play. Find out why.

At first, I thought double bottoms were just double tops flipped upside down, but I was wrong. Itís not the formation thatís the puzzle; itís the price trend leading to a double bottom. With double tops and many reversal patterns appearing near the top of a price series, the approach leading to the pattern is usually steep. Prices rise rapidly, execute a reversal pattern, then drop just as quickly. With bottom formations, you can still have that type of behavior ó a catastrophic decline that turns and the stock recovers. However, it is also possible that you could witness a quick decline, then a slower, torturous downtrend as prices continue to drop even further, spread out over many months.

To detect double bottoms automatically, I couldnít just flip around the computer code to detect tops. I had to change the algorithm to accommodate the possibility of a meandering decline. Once that was accomplished, the program I designed to search my database was correctly detecting double bottoms in many of the stocks I follow.




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