A double bottom occurs when prices form two distinct lows on a chart. A double bottom is only complete, however, when prices rise above the high end of the point that formed the second low. The double bottom is a reversal pattern of a downward trend in a stock's price. The double bottom marks a downtrend in the process of becoming an uptrend. Double bottoms are often seen and are considered to be among the most common of the patterns. Because they seem to be so easy to identify, the double bottom should be approached with caution by the investor. According to Schabacker, the double bottom is a "much misunderstood formation. "Many investors assume that, because the double bottom is such a common pattern, it is consistently reliable. This is not the case. Bulkowski estimates the double bottom has a failure rate of 64%, which he terms surprisingly high. If an investor waits for a valid breakout, however, the failure rate declines to 3%.The double bottom is a pattern, therefore, that requires close study for correct identification.

A double bottom consists of two well-defined lows at approximately the same price level. Stock prices fall to a support level, rally and pull back up, then fall to the support level again before increasing. The two lows should be distinct. According to Edwards and Magee, the second bottom can be rounded while the first should be distinct and sharp. The pattern is complete when prices rise above the highest high in the formation. The highest high is called the confirmation point.

Analysts vary in their specific definitions of a double bottom. According to some, after the first bottom is formed, a rally of at least 10% should follow. That increase is measured from high to low. According to Edwards and Magee, there should be at least a 15% rally following the first bottom. This should be followed by a second bottom. The second bottom returning back to the previous low (plus or minus 3%) should be on lower volume than the first. Other analysts maintain that the rise registered between the two bottoms should be at least 20% and the lows should be spaced at least a month apart.

Stock Investors should pay close attention to volume when analyzing a double bottom. Generally, volume in a double bottom is usually higher on the left bottom than the right. Volume tends to be downward as the pattern forms. Volume does, however, pick up as the pattern hits its lows. Volume increases again when the pattern completes, breaking through the confirmation point. Monitoring volume is a key aspect of determining whether or not a double bottom is valid. Schabacker insists that the volume rule must be applied quite strictly in the case of a double bottom. Elaine Yager, Director of Technical Analysis at Investec Ernst and Company in New York and a member of Recognia's Board of Advisors, strongly agrees with this point. The first low must be made with noticeably high volume. The second low must also experience high volume but it need not achieve the level of the first low. Bulkowski explains that volume tends to rise substantially at the time of breakout.

The pivot buy point in a double bottom is located on the top right side of the “W” where the stock is coming up after the second leg down. The pivot point should be equal in price to the top of the middle peak of the “W”. If the double bottom has a handle, then the peak price of the handle is the pivot buy point.