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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Bulkowski's Ugly Double Bottoms

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Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 08/17/2017
21,751 -274.14 -1.2%
9,152 -224.77 -2.4%
734 -5.20 -0.7%
6,222 -123.20 -1.9%
2,430 -38.10 -1.5%
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22,250 or 21,500 by 09/01/2017
9,700 or 8,900 by 09/01/2017
750 or 710 by 09/01/2017
6,500 or 6,150 by 09/01/2017
2,525 or 2,425 by 09/01/2017

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.

Ugly Double Bottom Chart Pattern: Summary

Think of an ugly double bottom as a double bottom in which the second bottom is significantly higher than the first. Ugly double bottoms can help you time the entry when bottom fishing.

The average rise is exactly the same as for all double bottoms (33.7% when compared to 1,452 double bottoms from 7/1991 to 11/2004) but the failure rate is worse, 8% ( ugly double bottoms) versus 5% for all double bottoms. The following statistics are based on a study of 562 patterns found in 100 stocks from July 1991 to July 1996. Discovered by Thomas N. Bulkowski in March 2006.

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My book, Encyclopedia of Chart Patterns Second EditionEncyclopedia of Chart Patterns 2nd Edition book. pictured on the left, takes an in-depth look at 63 chart and event patterns, including performance statistics.

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Ugly double bottom chart pattern
Ugly Double Bottom Chart Pattern

 

Ugly Double Bottoms: Important Bull Market Results

Overall rank for up breakouts: 14.5 out of 23
Break even failure rate: 8%
Average rise: 34%
Throwback rate: 59%
Percentage meeting price target: 76%

The above numbers are based on hundreds of perfect trades. See the glossary for definitions.

Ugly Double Bottoms: Identification Guidelines

CharacteristicDiscussion
Price trendDownward leading to the chart pattern. For best performance, choose patterns at the bottom of the downtrend, not as part of a congestion region in an uptrend.
ShapeLooks like a double bottom with unequal bottoms. The second bottom should be at least 5% higher than the first, be similar in shape, and a consecutive minor low (no intervening low).
VolumeRecedes 81% of the time
BreakoutUpward when price rises above the highest high between the two bottoms.
ConfirmationThe pattern confirms as a valid one when price closes above the peak between the two bottoms. If price does not close above the confirmation price then it's not an ugly double bottom.

 

Ugly double bottom chart pattern buy location

As an example, consider the figure to the right. Points 1 and 2 show the two double bottoms after a price downtrend. The pattern becomes a true ugly double bottom when price closes above the horizontal blue line (the word Buy points to it in the figure).

You may think that points A and B also form an ugly double bottom, but they do not. Price does not close above C (the highest high between the two bottoms, shown as the green line) before making a new low at D. That is a very important distinction. Price must rise above the highest high between the two bottoms to confirm the ugly double bottom as a valid chart pattern. Otherwise, you just have more squiggles on the price chart.

 

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Ugly Double Bottoms: Trading Tips

Trading TacticExplanation
Measure ruleCompute the height from the highest peak (point C in the Measure Rule figure to the right) to the left bottom low (A) then multiply it by the above “percentage meeting price target.” Add the difference to the breakout price (the price of the highest high between the two bottoms, C) to get a price target.
Second LowThe second bottom (the right one, B, in the Measure Rule figure to the right) should be at least 5% above the left one (A).
TrendThe best performance comes from intermediate-term (3-6 months) downtrends leading to the chart pattern.
BreakoutThe best performance comes from chart patterns that breakout within 3 days of completing the second bottom low.
ReversalThe pattern acts as a reversal of the downtrend.
Volume trendIf volume slopes downward, the pattern tends to perform better.
Avoid yearly lowPatterns with breakouts within a third of the yearly low tend to under perform.
ThrowbacksThrowbacks hurt performance.
Ugly double bottom chart pattern measure rule
The Measure Rule
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To improve performance, look for patterns with breakout day volume above the 30-day average and the bottom-to-bottom price difference of at least 5%. Ugly double bottoms qualifying show an average rise of 39% versus 34% for all ugly double bottoms.

Ugly Double Bottoms: Trading Setup

Trading setup for the ugly double bottom

The figure to the right shows the preferred setup. The decline begins at point 1, usually several months before the ugly double bottom. As price nears the ugly double bottom, it declines at a faster rate, usually forming a straight-line run that approximates 45 to 60 degrees (points 2 to 3). This is the blow-off stage and it usually lasts at least a month, often 6 weeks or so. The panic selling ends at 3 and a bounce occurs which takes price back up to 4, forming the second bottom of an unconfirmed ugly double bottom.

After point 4, it should take just a few days (usually less than a week) for an upward breakout to occur in a strong push upward on high volume. Price usually continues in a strong advance upward. If you see price rounding over and closing below a trendline formed by joining points 3 and 4 and projected upward (the green sell line), then consider selling. Unless the trendline is unusually steep, a close below the trendline means the primary decline has work left to do and price is going lower. Save your bucks and sell immediately. Otherwise, watch the rise and monitor the 3-4 trendline. Many times, price will break this trendline several months later when the rise ends. That's the time to sell.

Ugly Double Bottom Example

Ugly double bottom chart pattern example

The above figure shows an example of an ugly double bottom chart pattern. Price moves nearly horizontally during October and into November and then takes a dive to the first low at 1. A higher low occurs at 2, forming the ugly double bottom, confirmed when price closes above the blue confirmation line. A throwback occurs but it does not close below a line connecting bottoms 1 and 2.

-- Thomas Bulkowski

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Other Ugly Double Bottom Examples

See Also

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. Lottery: a tax on people who are bad at math.