How to Spot High-Probability Double Bottom Patterns
11/25/2009 12:01 am EST
One of the most common and best patterns is the double bottom pattern. This is simply when the market seems to retest a low and then bounces higher off the low level. It is important to watch for the double bottom low to pierce the prior low before reversing back higher. This is because market makers are looking to bait in momentum short traders and then come in and rip it against them.
Once they are forced to cover their short trade by buying back the stock, it creates extra momentum to the upside and therefore pushes the stock even higher. The best double bottoms usually have prior support levels on the chart. In the example below, you can see the prior support on CAT at the 54.25 area on October 13-15. This is signaling that CAT should have good support at this level.
Remember, as traders, we are always looking to increase the odds and make the trade more favorable. Please understand it is always prudent to use stops and good money management in any trade.
By the Staff at InTheMoneyStocks.com
InTheMoneyStocks.com is a research and consulting company focused on mathematical proprietary techniques along with a key understanding of price, pattern, and time.