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Double Bottoms: Better Entries with Bollinger Bands®

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Trading the Double Bottom

Just a quick note before we get started – everything we’ll talk about today should be considered as educational in nature only, not a personalized trading recommendation.

Bollinger Bands are a versatile volatility indicator that can provide traders with dynamic pricing information.

So today, let’s look at how Bollinger Bands may help increase our probability of choosing a successful entry point when trading the classic Double Bottom.

The double bottom resembles a W on the chart.

It forms when the stock sells off to a low, then has a rally, followed by a test of the previous low.

This pattern typically occurs at the end of a downtrend and signals the beginning of a potential uptrend.

Now, you may wait for the stock to break out past the middle peak of the “W”— to get confirmation of the pattern — and buy in at that point.

Or, you can use Bollinger Bands to try and enter earlier so you can potentially capture a larger gain.

As the W is forming, pay attention to the lows.

What we are look for is a first low that touches or sits outside the lower band, and a second low that is inside the lower band.

When it forms this way, it indicates there is a stronger chance the uptrend is beginning, AND, that it may exceed the middle peak.

When the second low is inside the lower Bollinger Band it generally means that it is a higher low on a relative basis,

This allows us to buy it with added confidence, regardless of whether it is higher or lower than the first low.                                                                                           

These double bottom patterns show up all the time, and, in hindsight, are easy to spot.

But identifying them in real time is harder.

Bollinger Bands may help you evaluate double bottoms and allow you to take action with more confidence.

If you’d like to learn more about technical analysis, join my Schwab Live weekly webinar “Charting the Markets”, featuring real-time analysis of emerging trends right from my screen, plus live Q&A.

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Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. Examples are not intended to be reflective of results you can expect to achieve.

Diversification strategies do not ensure a profit and do not protect against losses in declining markets. 

All expressions of opinion are subject to change without notice in reaction to shifting market conditions.

Past performance is no indication (or "guarantee") of future results.

Schwab does not recommend the use of technical analysis as a sole means of investment research.

The trailing stop feature is not available on all of Schwab's trading platforms. There is no guarantee that execution of a stop order will be at or near the stop price. 

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