Tackle Today: W is for Winners
April 8, 2022
«When Bulls Return.»
Traders,
Now that we’ve got an idea of the most common bottoming patterns, let’s take a closer look at the double bottom. It looks like the letter “W” and signals a shift in power from bears to bulls. Let’s break it down.
Downtrends are comprised of lower pivot lows. To form a lower pivot low requires breaking below the previous trough. It’s a feat only accomplished when bears are pressing their advantage and bulls are unwilling or unable to defend the old floor.
But what happens if prices hold the prior low? An equal pivot low forms. It signals a failure of sellers to continue the downtrend. It also signals that downside momentum has stalled, that bulls are putting up a fight at support and are winning. Not all double bottoms result in a massive uptrend. Some simply reveal a momentum shift from down to sideways.
For the downtrend to fully reverse requires a break of resistance. Ultimately, that is what completes and confirms the W formation.
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