double bottom
Double bottom is a chart pattern shaped like the letter W, where a stock price falls twice to about the same low point before turning upward for good.
In plain English
Some things fall once and never get up. Okada rider hits a pothole, tips over, and that is the end of that ride. Other things fall, struggle back up, stumble on the exact same spot, and then finally find their footing and walk on steady.
A stock price behaves like the second kind sometimes. It drops to a certain level, say ₦20 a share, because everyone is selling in fear. Then it recovers a bit, gives people hope, and then falls back down to that same ₦20 level again, testing it a second time. If it holds there and does not break lower, and then climbs, chartists call that shape a double bottom.
On the chart it looks like a rough letter W. The two low points are the bottoms, and the middle bump is where the price tried to rally before losing steam and coming back down to test its floor once more. When it survives that second test and pushes past the middle bump, many traders see it as a sign that the sellers are tired and buyers are taking charge.
A Nigerian trader watching a bank stock on the NGX might see it slide from ₦25 to ₦18 in a panic over interest rate news, bounce to ₦22, slide back to ₦18 again on more bad headlines, then hold and climb past ₦22. That is the pattern people are talking about when they say double bottom.
In London, someone watching a mining stock on the FTSE might see the same shape after a commodity price scare. The pattern itself does not care which exchange you are on, it just describes a price finding the same floor twice and refusing to sink through it.
No pattern guarantees anything, and plenty of double bottoms fail and keep falling. It is a clue, not a certificate.
A stock falls from ₦40 to ₦30, rises to ₦35, falls back to ₦30 again but does not go lower, then climbs to ₦45. Those two touches at ₦30 form the double bottom, and the move past ₦35 confirms it for many chart watchers.
Questions people ask
Does a double bottom guarantee the price will keep rising?
No. It is a pattern people watch for clues, not a promise. Plenty of double bottoms fail and the price falls through the floor anyway, so it should never be your only reason to buy.
How do I know the second bottom is really the same as the first?
Traders usually allow some small difference, the two lows do not need to be exactly equal, just close enough that they look like they are testing the same floor on the chart.
What is the difference between a double bottom and a higher low pattern?
A double bottom has two lows at roughly the same level, while a higher low pattern shows each dip landing above the last one, which suggests buyers are stepping in earlier and earlier.
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