As of 11/20/2024
Indus: 43,408 +139.53 +0.3%
Trans: 17,002 -26.31 -0.2%
Utils: 1,055 +1.25 +0.1%
Nasdaq: 18,966 -21.33 -0.1%
S&P 500: 5,917 +0.13 +0.0%
|
YTD
+15.2%
+6.9%
+19.7%
+26.3%
+24.1%
|
 46,000 or 43,000 by 12/01/202418,000 or 16,600 by 12/01/20241,075 or 1,000 by 12/01/202420,000 or 18,400 by 12/01/20246,100 or 5,800 by 12/01/2024 |
As of 11/20/2024
Indus: 43,408 +139.53 +0.3%
Trans: 17,002 -26.31 -0.2%
Utils: 1,055 +1.25 +0.1%
Nasdaq: 18,966 -21.33 -0.1%
S&P 500: 5,917 +0.13 +0.0%
|
YTD
+15.2%
+6.9%
+19.7%
+26.3%
+24.1%
| |
|
46,000 or 43,000 by 12/01/202418,000 or 16,600 by 12/01/20241,075 or 1,000 by 12/01/202420,000 or 18,400 by 12/01/20246,100 or 5,800 by 12/01/2024 | ||
Trading lessons added 6/26/24.
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.
$ $ $
My book, Encyclopedia of Chart Patterns, 3rd Edition takes an in-depth look at 63 chart and event patterns, including performance statistics. However, it does not include ugly double bottoms. I wonder why I left it out...
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Ugly Double Bottom Chart Pattern
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The above numbers are based on hundreds of perfect trades. See the glossary for definitions.
| Characteristic | Discussion |
| Price trend | Downward 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. |
| Shape | Looks 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). |
| Volume | Recedes 81% of the time |
| Breakout | Upward when price rises above the highest high between the two bottoms. |
| Confirmation | The 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. |
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.
| Trading Tactic | Explanation |  The Measure Rule
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| Measure rule | Compute 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 Low | The second bottom (the right one, B, in the Measure Rule figure to the right) should be at least 5% above the left one (A). | |
| Trend | The best performance comes from intermediate-term (3-6 months) downtrends leading to the chart pattern. | |
| Breakout | The best performance comes from chart patterns that breakout within 3 days of completing the second bottom low. | |
| Reversal | The pattern acts as a reversal of the downtrend. | |
| Volume trend | If volume slopes downward, the pattern tends to perform better. | |
| Avoid yearly low | Patterns with breakouts within a third of the yearly low tend to under perform. | |
| Throwbacks | Throwbacks hurt performance. |
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.
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.
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.
I present the information in slider format, so be sure to click the left or right arrows to view another slide.
This chart shows the stock gapping downward (at A) before the ugly double bottom forms. Should you take the trade? My answer was "no." Why? Because of the gap down. That happened on bad news (I'm assuming. I didn't check but the market reacted to it by dropping). The stock recovered over the next three months before gapping down again. Because the spread was 3 months between the two gaps, the gaps could be due to a bad earnings surprise. The stock never made it to the measure rule target before failing.
This is a trade I didn't take because of the multi-peak pattern. I underlined the peak in red (it's a head-and-shoulders top, too). The bottom of this pattern looks formidable from a resistance perspective. As the chart shows, the stock moved up and reached the ultimate high (green dot) but fell short of the measure rule sell target. The stock eventually cratered for a loss.
This is a chart which shows a long tail (or spike, as it's called, circled). In this case, the downward plunge is bullish because the bulls drive price back up to close near the top of the day's price range. It suggests bulls will remain in command. And they do, resulting in a winning trade.
This is another example of a multi-peak disaster. I circled the multi-peak in red but resistance to an upward move extends to the right as the horizontal red line shows. The stock hits that resistance and tumbles to form the ugly double bottom. The stock climbs to the ultimate high (green dot) and then sinks. It does not reach the measure rule target.
-- Thomas Bulkowski
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