Buy signal from double bottom formation

A buy signal from a double bottom formation signals increasing optimism among investors and the beginning of a rising trend.

A double bottom formation is a bottom formation which marks the end of a falling period. The formation consists of two bottoms of about the same depth. The buy signal is triggered when the price breaks upwards above the bottoms.

Buy signal from double bottom formation
At the first bottom the investors are pessimistic. There is a falling trend and things are not looking good for the company. As the second bottom is formed, the pessimism is reduced. Many are positively surprised when the stock does not fall below the previous bottom, and thus might not continue the falling trend. When the price breaks above the top between the bottoms, it breaks the resistance located there. Pessimism has been replaced with dawning optimism and a rising trend has begun.

A stock that has triggered a buy signal from a double bottom formation is indicated to rise further, for at least as much as the formation is high.

Details

Double bottom formations trigger false buy signals fairly often. This is especially the case when the formation is small, when the stock remains in a falling trend channel, and when volume development is negative. At buy signal from a double bottom formation the stock as a whole should be assessed, not solely the buy signal. Many investors have bought losing stocks too soon following weak signals from double bottom formations. The following applies:

  • Large double bottom formations are stronger than small ones.
  • Buy signals with positive volume development are stronger than buy signals with negative volume development.
  • Buy signals with a clear break through a falling trend, including break above the previous pivot top, are stronger than without breaks through trend and pivot top.

Stocks withBuy signal from double bottom formation

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Investtech guarantees neither the entirety nor accuracy of the analyses. Any consequent exposure related to the advice / signals which emerge in the analyses is completely and entirely at the investors own expense and risk. Investtech is not responsible for any loss, either directly or indirectly, which arises as a result of the use of Investtechs analyses. Details of any arising conflicts of interest will always appear in the investment recommendations. Further information about Investtechs analyses can be found here disclaimer. The content provided by Investtech.com is NOT SEC or FSA regulated and is therefore not intended for US or UK consumers.

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