Thursday, July 21, 2011
Double bottom pullbacks
An important continuation signal on a bull trend day is the double bottom flag (double top in bear trends). These are especially strong when they occur at supports. For example, today we had two double bottom bull flags. The first at b29,35 was at the BT of the 1PB entry above b6 and the next at b59,69 was at a trendline.
A DB after a deep pullback has a lot of significance, since it implies traders are buying again or adding on close to their entry price. A DB followed by a small pullback that doesn't quite touch the bottom turns into a DP. An inside bar such as b36 or a miss by a tick or two such as b74 constitute a DP.
DPs are a kind of failed breakout and are expected to go to the other end of the range (b12 high for b35 and b40 high for b75) and should be taken if the range is large.