The pattern is made up of two consecutive troughs that are roughly equal, with a moderate peak in-between.
Double-bottom patterns usually marks an intermediate or long-term change in trend. Until key resistance is broken, a reversal cannot be confirmed.
The following are key points in confirming the double-bottom pattern:
Prior Trend: With any reversal pattern, there must be an existing trend to reverse. In the case of the double-bottom, a significant downtrend of several months should be in place.
First Trough: The first trough should mark the lowest point of the current trend. The first trough is fairly normal in appearance and the downtrend remains firmly in place.
Peak: After the first trough, an advance takes place that typically ranges from 10 to 20%. Volume on the advance from the first trough is usually not important, but an increase could signal early share accumulation.
Second Trough: The decline off the reaction high usually occurs with low volume and meets support from the previous low. Even after establishing support, only the possibility of a double bottom exists, it still needs to be confirmed.
The time period between troughs can vary from a few weeks to many months, with the norm being 1-3 months. While exact troughs are preferable, there is some room to maneuver and usually a trough within 3% of the previous is considered valid.
Advance from Trough: Volume is more important for the double bottom than the double top. There should clear evidence that volume and buying pressure are accelerating during the advance off of the second trough.
Resistance Break: Even after trading up to resistance, the double top and trend reversal are still not complete. Breaking resistance from the highest point between the troughs completes the double bottom. This should occur with a large increase in volume.
The OBV Indicator can be used to confirm the break.
Resistance Turned Support: Broken resistance becomes potential support and there is sometimes a test of this newfound support level with the first correction down. Such a test can offer a second chance to close a short position or initiate a long sale.
Price Target: The distance from the resistance breakout to trough lows can be added on top of the resistance break to estimate a target. This would mean that the bigger the formation is, the larger the potential advance.
what is On Balance Volume - OBV
The on balance volume (OBV) indicator was developed by a fellow named Joseph Granville in 1963.
What makes OBV so useful is that it presents a more visual way to view the share price volume flow and compare it to the stock's price action.
Volume should increase in the direction of the price trend, and this indicator makes it easier to make sure that is happening.
If the direction of the OBV line is up, the line is bullish meaning that there is more volume on up days than on down days.
A falling OBV line signals that volume is heavier on down days, and is considered to be bearish.
[i]what do you guys have to say on dimo ? DB going to go for breaking point or not?[/i]
this is not a buying recommendation and i hold 800dimo @1617/=
[You must be registered and logged in to see this image.]
i'm new give me some rep guys.
- You don't have permission to download attachments.
- (29 Kb) Downloaded 37 times