History is a witness of the fact that an up move is always followed by a down move and vice-versa in the stock markets. “Nothing is permanent”. This means that it is impossible for a stock to keep moving in the northern or the southern direction all the time. There comes a phase when the ongoing move comes to a halt and then begins a move exactly in the opposite direction. An investor who identifies the change in trend at the earliest could save a huge amount of his capital invested already or is willing to invest in a stock over the period of time.  

 One such tool that helps in identifying the turnaround of a stock is “Double Bottom” pattern. Let us see an example of United Phosphorous chart.  It can be seen that the stock began to slide from the 16/01/08 and continued to keep coming down till 19/03/08. In the process the stock depreciated its value by a whopping 46.5%. Now things began to change from 19/03/08 where the stock formed 2 round bottoms exactly at the lowest point of its fall. If a straight line is drawn, connecting the necks of the 2 bottoms (Neckline), it can be clearly seen that the stock cut loose as soon as it crossed the neckline. Hence it can be concluded that the stock bottomed out and turned around to start its move in the opposite direction as soon as it closed above the neckline. Yet another confirmation arose from the fact that there was a significant increase in the volumes as soon as the pattern was completed.

 What is Double Bottom Pattern?

 The double bottom is a major reversal pattern that forms after an extended downtrend. As its name implies, the pattern is made up of two consecutive troughs that are roughly equal, with a moderate peak in-between. Although there can be variations, the classic double bottom usually marks an intermediate or long-term change in trend. Many potential double bottoms can form along the way down, but until key resistance is broken, a reversal cannot be confirmed.

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