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Double Bottom, Double Top

Trends don’t tend to “turn on dime”. Instead, the extreme is usually retested, after an interim retracement of five to seven percent or more. The retest may actually pierce the initial extreme (as in the examples above), or the retest may stop just short of touching the initial extreme. Regardless, the resulting pattern is a DOUBLE BOTTOM or a DOUBLE TOP.

  1. Trending
  2. Correcting
  3. False break
  4. Breakout

 

 

Volume in A DOUBLE BOTTOM or a DOUBLE TOP should be heavier at the initial extreme and lower when the extreme is retested. Ideally, volume should accelerate into and out of the retest, albeit at lower levels than during the initial extreme. And as with all breakouts, volumes pace should be increasing at above average levels.

A DOUBLE BOTTOM or a DOUBLE TOP pattern’s retest is vulnerable to resuming the trend instead of reversing it. The longer that the retest’s resolution is delayed, the more likely that a reversal will be attempted, and the more likely that it will fail. A faster reversal attempt is more likely to succeed, but it is not confirmed until the interim retracement is exceeded.