Bulkowski's Ugly Double Bottom Quiz

This is an ugly double bottom (UDB). Think of it as a double bottom in which the second bottom is significantly higher than the first. Performance of both the average rise and failure rate is worse than an Eve & Eve double bottom.

Important Bull Market Results

Overall rank for up breakouts: 14.5 out of 23 (means is squeezes between existing ranks 14 and 15)

Break even failure rate: 8%

Average rise: 34%

Throwback rate: 59%

Percentage meeting price target: 76%

Here are the identification guidelines for ugly double bottoms.

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

You may think that points A and B also form a UDB, but they do not. Price does not close above C (the highest peak 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 UDB as a valid chart pattern. Otherwise, you just have squiggles on the price chart.

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%. UDBs qualifying show an average rise of 39% versus 34% for all ugly double bottoms.

Notice how price makes lower lows at 1, 2, 3 and 4 without closing above the intervening high (A, B, etc). Since we want to find bottoms more than 5% apart in price, point 4 reaches a low of 44.17. So 5% above this is 46.38. Select a low that bottoms higher than this price. That's point 6. But, before you buy, price has to rise above confirmation. It does this at the buy price ("Buy at open"). If you placed a buy order a penny above the high between points 4 and 6, you'd get the opening price.

Unfortunately, price doubles back and you suffer an 11% drawdown, but it illustrates how to use the chart pattern to bottom fish. If you held on (which I don't recommend) or bought at a different time, you would have been rewarded as the chart shows.

You want to avoid situations like CD. There, price has risen before retracing a portion of the rise. Let's suppose that D is 5% or more above C. You'd still want to avoid this because the bottom at C is not at a primary turning point – it's part of a retrace in an uptrend (see the angled red line on the left), not after an extended downtrend like at point 4. You can buy the CD ugly double bottom (again, assume it qualifies…even though it doesn't in this example), but your risk of failure increases and the profit potential decreases.