As of 01/20/2021
  Indus: 31,188 +257.86 +0.8%  
  Trans: 13,126 +225.85 +1.8%  
  Utils: 865 +7.27 +0.8%  
  Nasdaq: 13,457 +260.07 +2.0%  
  S&P 500: 3,852 +52.94 +1.4%  
YTD
 +1.9%  
 +4.9%  
 +0.0%  
 +4.4%  
 +2.6%  
  Targets    Overview: 01/13/2021  
  Up arrow32,000 or 29,600 by 02/01/2021
  Up arrow13,500 or 12,300 by 02/01/2021
  Up arrow890 or 800 by 02/01/2021
  Up arrow13,500 or 12,400 by 02/01/2021
  Up arrow3,900 or 3,625 by 02/01/2021
CPI (updated daily): Arrows on 11/2/20
As of 01/20/2021
  Indus: 31,188 +257.86 +0.8%  
  Trans: 13,126 +225.85 +1.8%  
  Utils: 865 +7.27 +0.8%  
  Nasdaq: 13,457 +260.07 +2.0%  
  S&P 500: 3,852 +52.94 +1.4%  
YTD
 +1.9%  
 +4.9%  
 +0.0%  
 +4.4%  
 +2.6%  
  Targets    Overview: 01/13/2021  
  Up arrow32,000 or 29,600 by 02/01/2021
  Up arrow13,500 or 12,300 by 02/01/2021
  Up arrow890 or 800 by 02/01/2021
  Up arrow13,500 or 12,400 by 02/01/2021
  Up arrow3,900 or 3,625 by 02/01/2021
CPI (updated daily): Arrows on 11/2/20

Bulkowski on Busted Double Bottoms

 

Updated with new statistics on 12/28/2020.

The third edition of this book Encyclopedia of Chart PatternsEncyclopedia of Chart Patterns. has a table in most chapters discussing busted pattern performance.

$ $ $

Busted Double Bottoms: Summary

A stock forms a double bottom which confirms as a valid pattern when price closes above the top of the double bottom. Price rises no more than 10% before dropping and closing below the bottom of the chart pattern. This busts the upward breakout and the double bottom becomes a busted double bottom.

Shorting a stock showing a busted double bottom in a bull market is probably unwise since the average decline is just 15%, and that represents the results from almost 200 perfect trades. I'll discuss more performance statistics later.

Busted Double Bottoms: Single Busts

Picture of Abbott Labs (ABT) on the daily scale.

The figure shows an example of a single busted double bottom (AB, busting at E). I highlight the top of the double bottom pattern (AB) with a blue line and the bottom of the pattern with another blue line. Yes, I like blue.

An Adam & Adam double bottom appears at AB. The price trend is downward leading to the start of the double bottom, as is nearly always the case (it's hard to see the downtrend in this example). After that, the two bottoms (AB) appear near the same price.

The stock breaks out upward from the double bottom when price closes above the highest peak between the two bottoms. That happens at C.

Price climbs to D but that is less than 10% above the breakout price (C), before the stock tumbles. The drop takes price down to E where it closes below the bottom of the double bottom. That busts the double bottom.

Price continues lower, more than 10% (F), to confirm a single busted pattern.

To identify a single busted double bottom, look for:

  1. Price must confirm the double bottom by closing above the top of the double bottom. That occurs at C in the figure.
  2. Price must rise no more than 10% (the rise from the to blue line to D).
  3. Price then closes below the bottom of the double bottom (E).
  4. Price continues dropping more than 10% (the drop from the bottom blue line to F).

If price fails to drop more than 10% below the bottom of the double bottom, then it could be double busting.

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Busted Double Bottoms: Double Busts

Picture of Abbott Labs (ABT) on the daily scale.

I show another chart of Abbott Labs but the double bottom at AB is not ideal. Price on the B bottom is above the left one. If you're drunk, then you might blame this on your eyesight. If not, then I thought that the two bottoms were close enough in price to be acceptable, but it sure looks strange on this chart.

Price confirms the Adam & Adam double bottom at C when it closes above the top of the chart pattern. Price climbs only to D before dropping. The measure from the top blue line to D is less than 10%.

Price busts the double bottom at E when it closes below the low of the double bottom (below A). However, the stock only drops to F, which is less than 10% below the bottom blue line, before heading up to G.

At G, price closes above the top of the double bottom, busting it for the second time. To finish the double bust, price continues to rise to H and beyond, more than 10% above the top blue line.

For a double bust, look for these elements.

  1. Price must confirm the double bottom by closing above the top of the double bottom (C).
  2. Price rises no more than 10% before reversing (the move from the top blue line to D, in this example).
  3. Price closes below the bottom of the chart pattern (E). This busts the pattern for the first time.
  4. Price drops no more than 10% below the bottom of the double bottom (the drop from lower blue line to F).
  5. Price closes above the top of the double bottom. This busts the chart pattern for the second time (G).
  6. The stock rises more than 10% above the top of the double bottom (the move from the top blue line to H).

A double busted double bottom turns into a triple bust when the GH move is no more than 10% and price then closes below the bottom of the chart pattern.

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Busted Double Bottoms: Triple Busts

Picture of Dell (DELL) on the daily scale.

I show a picture of Dell (DELL) on the daily scale. Price forms the double bottom at AB, which confirms when price closes above the top of the pattern at C.

Price climbs less than 10% before dropping to D, which closes below the bottom of the chart pattern, busting it for the first time.

Price drops no more than 10% before climbing to E and closing above the top of the double bottom. This busts the double bottom for a second time.

The move from the top blue line (the top of the chart pattern) to E is less than 10%. Then price drops to F. A close below the bottom of the chart pattern busts it for the third time. At this point, I stop counting the busts.

For a triple (or more) busted double bottom, look for the following:

  1. Find a double busted double bottom except that price fails to rise more than 10% after the second bust (the rise from the top blue line to E). In this example, D is the first bust, and E is the second.
  2. Price closes below the bottom of the chart pattern, busting the pattern for the third time.
  3. Price may continue to bust the pattern if it crosses the pattern and then fails to move more than 10% above the top or below the bottom of the chart pattern. The busted count stops whenever the move is more than 10% above or below the double bottom.

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Busted Double Bottoms: Performance

Here's a few statistics from the book. This is for Eve & Eve double bottoms with upward breakouts (so they bust downward).

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Busted Double Bottoms: Trading

Picture of Advanced Micro Devices (AMD) on the daily scale.

I show a picture of Advanced Micro Devices (AMD) on the daily scale. The double bottom is at AB which confirms when price closes above the top blue line, at C.

Notice that price climbs less than 10% above the blue line before dropping and closing below the bottom of the chart pattern at D.

When the stock closes below the bottom blue line, D, it busts the chart pattern. A conditional order to short the stock after the close would get you into the stock at the open the next day, at 16.41.

The stock drops and bottoms in December 1997 (below E) at 8.56 before bouncing up to 15.50. The decline measures 48%.

This example shows an unusually large decline. Do not expect similar results from your trades. Remember that the average decline after a busted double bottom is just 15%.

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-- Thomas Bulkowski

See Also

 

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Chart Patterns: After the Buy Getting Started in Chart Patterns, Second Edition Trading Basics Fundamental Analysis and Position Trading Swing and Day Trading Visual Guide to Chart Patterns Encyclopedia of Candlestick Charts Encyclopedia of Chart Patterns 2nd Edition Trading Classic Chart Patterns

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