Novice Traders' Notebook  |  FEB 1998

Double Bottoms by Thomas Bulkowski

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. It’s not the formation that’s the puzzle; it’s 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 — 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 couldn’t 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.

by Thomas Bulkowski