The Double Bottom Chart pattern is a reversal pattern that is bullish. This pattern is created when a key price support level on a chart is tested twice with a rally between the two support level tests.
- A double bottom chart pattern happens at the end of a downtrend that has likely gone on for weeks or months.
- The first bounce off support where price stops going down is the first support level.
- The first bounce and reversal in the downtrend is small and the short term run up is usually approximately 5% to 10% off the support lows.
- The first rally off the lows fails and price returns to the previous support.
- The previous price support lows hold on the second test.
- The second test of support must be confirmed by a reversal and trend, it is only a potential pattern until support holds and price rallies off the support with higher volume and sometimes a gap up in price.
- A breakout back over the high price that occurred in the middle between the double bottom support tests is a full confirmation of the double bottom reversal pattern. This is the level where a signal to enter long can be given.
- A double bottom chart pattern can take weeks and even months to play out with the middle rally resistance taking many different sizes and shapes.
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On the Exxon Mobil chart example, the double bottom support level is the horizontal support zone between $33 and $30. One potential buy signal that traders could have considered using for this chart was a bounce off the double bottom support near $29 and a break back out of the double bottom support zone around $33.