Stock Tool #6: ‘W’ Reversals

I was clicking around Knight Trader's blog and I found a link to this website. I liked their write up on double bottoms. Right now, as most of the stocks on my watchlist are plummeting because of the deteriorating market, I'm studying ways to look for bullish reversals and supported bottoms.

Double Bottoms provide visual reference points that map the entire reversal process. Once located, these signposts identify most key price pivots and flash early warning signals when violated. The most common of these, The Big W, begins at the last major high printed by a downtrending stock, just prior to the first bottom. The first bounce after this low creates the center of the W as it retraces between 38% and 62% of that last downward move.

This site has a writeup on the double bottom, which they aptly call the 'W' Reversal. From a purely technical standpoint, the double bottom is usually sign that a stock has bottomed.