What the double bottom pattern is
A double bottom is a bullish reversal pattern shaped like the letter W. After a fall, price drops to a low, bounces, falls back to roughly the same low, and then rises again. The peak between the two lows is the neckline. Planning a double bottom trade means knowing three things before you buy: where the breakout is, where the stop-loss goes and where the target is.
It suggests sellers tried twice to push price lower and failed both times at the same support. If price then clears the neckline, the downtrend of lower highs and lower lows is broken.
As a reversal pattern, it needs a clear decline before it. The two lows are usually a few weeks apart and within a couple of per cent of each other. The second low is often made on lighter volume than the first, a sign that selling is drying up.
How the double bottom is confirmed
Two lows are not a double bottom yet. Many stocks make two similar lows and then simply break below them. The pattern is confirmed only when price closes above the neckline, which is a breakout through resistance.
Look for:
- a daily close above the neckline, not just an intraday move above it;
- volume on the breakout day clearly above the recent average;
Some traders buy the breakout close; others wait for a pullback to the old neckline, which often turns into support. That gives a tighter stop, but price does not always come back.
Double bottom stop-loss and target
There are two common places for the stop-loss:
- Below the second low. This is the level the pattern is built on. If price breaks it, the pattern has failed beyond doubt. It is a wide stop.
- Below the last small swing low before the breakout, or below the breakout day's low. This is tighter, so you can hold more shares for the same risk, but normal noise will stop you out more often.
The target uses the measured move: take the height of the pattern, from the lows up to the neckline, and project it upward from the breakout point. A pattern ₹50 tall that breaks out at the neckline gives a first target ₹50 above the neckline.
With the stop below the lows, the distance to the stop and the distance to the target are about the same, so the reward-to-risk is near 1:1. That is why many traders use the tighter stop, or use the measured move only as a first target and then trail the rest with a trailing stop.
Sizing the double bottom trade
Decide how much money you are willing to lose if the trade fails, then let that decide the number of shares:
Shares = risk in ₹ ÷ (entry − stop-loss)
A separate example with round numbers: two lows near ₹450, a neckline at ₹500, so the pattern is ₹50 tall and the target is ₹550. You buy at ₹505 after the breakout and place the stop at ₹480, below the last small dip before the breakout. Your risk per share is ₹25. If you are willing to risk ₹3,000 on this trade, you can buy ₹3,000 ÷ ₹25 = 120 shares, a position of about ₹60,600. With the wide stop at ₹445, the risk per share would be ₹60 and the same ₹3,000 would buy only 50 shares.
The Position Size Calculator does this arithmetic for you, including the risk per trade as a share of your capital.
Common mistakes
- Buying at the second low because it "looks like" a double bottom, before the neckline has broken.
- Ignoring volume, so a weak breakout is treated the same as a strong one.
- Moving the stop-loss lower when price comes back towards it.
- Sizing the position by how confident you feel rather than by the distance to the stop.
- Forgetting slippage when price gaps above the neckline.
How often the double bottom fails
Often. Breakouts above the neckline regularly fail within days and fall back into the pattern, and sometimes price goes on to break below both lows. Nobody can tell you in advance which ones will work.
The pattern does not give you certainty. What it gives you is a clear level where you are wrong. If you size every trade so that hitting the stop costs only a small, planned amount, the failures stay small and survivable.
Related patterns
- Double top, the bearish mirror image
- Cup and handle, a rounder bullish base
- Head and shoulders
- Trends, support and resistance
- Coming later: inverse head and shoulders, falling wedge and ascending triangle.
Updated 2026-10-16
Educational content only. It is not investment advice and not a recommendation to buy or sell any security. Prices in examples and illustrations are made up. Patterns and rules fail often; past behaviour guarantees nothing.