1.Formation of the Pattern
It usually appears as two approximately equal low points on a price chart, connected by a relatively higher rebound high point in the middle. Overall, it resembles the letter “W” in the English alphabet. This indicates that during a price decline, the price has found support at similar levels twice.
2.Formation Mechanism
Downtrend stage: The stock price continues to decline due to the dominance of bearish forces in the market and reaches the first low point. This is the first bottom exploration, marking a concentrated release of bearish forces.
Rebound stage: At the first low point, the decline in the stock price attracts some bottom-fishing funds to intervene. Meanwhile, the bearish forces weaken temporarily, leading to a rebound in the stock price.
Second downtrend stage: After rebounding to a certain height, the trapped investors in the market and some profit-taking investors start to sell, causing the stock price to decline again and approach the previous low point.
Second bottom exploration and stabilization stage: When the stock price approaches the previous low point, the buying power strengthens again, preventing the stock price from falling further and forming the second bottom. At this time, the balance of power between bulls and bears in the market begins to change, and the bullish forces gradually gain the upper hand.
Uptrend stage: After the second bottom is formed, the bullish forces continue to exert strength, pushing the stock price up gradually. Eventually, it breaks through the neckline, confirming the formation of the W-bottom pattern.
3.Technical Significance
Trend reversal signal: The appearance of the W-bottom usually indicates the end of the stock price’s downtrend and the beginning of an uptrend. It is a relatively reliable bottom reversal pattern. It shows that after the previous decline in the market, the bullish forces gradually accumulate and start to take the dominant position, propelling the stock price into a new upward phase.
Conversion of support and resistance: In the W-bottom pattern, once the stock price breaks through the neckline, the original neckline is transformed from a resistance level into a support level, which provides support for the subsequent rise of the stock price. At the same time, the lows of the two bottoms also become important support areas. Once the stock price retraces to the vicinity of these positions, it often receives strong support.
4.Trading Strategies
As shown in the chart above, once the neckline level is broken, a W double – bottom pattern is established, and then the price increase can be calculated. At the neckline breakout position, some chart patterns may break below the neckline again and then quickly pull back, standing above the neckline once more. Therefore, when the neckline is broken, go long, and set the stop – loss at the point where the neckline is broken. If the neckline holds, look for the price increase target area. This is the way of making large profits and incurring small losses in swing trading.
5.Calculation Method
How to predict how high the stock price will rise through powerful technical analysis?
(1) The value in the middle of the neckline is approximately 38, and the value in the middle of the double bottom is approximately 28. Measure the vertical distance. 38-28 = 10.
(2) The price of breaking through the neckline is approximately at 36. The target in the first equal distance increase is 46. 36 + 10 = 46.
Usually, when it reaches 46, it will mostly enter adjustment. Then, depending on the situation at that time, if the bullish structure is relatively strong, when it creates a new high in the wave after consolidation, calculate the increase in the second wave.
(3) The target in the second increase is directly 46 plus the equal distance. 46+10=56.
This usually doesn’t require complicated mathematical calculation. When investors are buying and selling stocks, they don’t actually know when they should sell after a substantial increase in the price, or when they should buy after a significant drop. This calculation method provides investors with a concise analytical approach.
6.Case Analysis
In the case analysis, we will use cases to analyze how to apply the above approach to predict how high the stock price will rise under the W-bottom pattern. One of the cases is the leading enterprise in the semiconductor industry ASML, two cases are about Tesla, and there is also one case of the fintech company SoFi Technologies.
Case1 ASML (2022-2024, Daily Chart)
How to predict how high the ASML stock price will rise through powerful technical analysis?
(1) The value in the middle of the neckline is approximately 600, and the value in the middle of the double bottom is approximately 400. 600-400=200.
(2) The price of breaking through the neckline is approximately at 600. The target in the first equal distance increase is 800. 600+ 200 = 800. After the stock price reached 800, the bullish momentum remained very strong, and there wasn’t even a pullback.
(3) The target in the second increase is 800 plus the equal distance. 800+200=1000.
Case2 TSLA (2023, Daily Chart)
How to predict how high the ASML stock price will rise through powerful technical analysis?
(1) The value in the middle of the neckline is approximately 600, and the value in the middle of the double bottom is approximately 400. 600-400=200.
(2) The price of breaking through the neckline is approximately at 600. The target in the first equal distance increase is 800. 600+ 200 = 800. After the stock price reached 800, the bullish momentum remained very strong, and there wasn’t even a pullback.
(3) The target in the second increase is 800 plus the equal distance. 800+200=1000.
Case3 TSLA (2023-2025, Weekly Chart)
How to predict how high the TSLA stock price will rise through powerful technical analysis?
- The value in the middle of the neckline is approximately 287, and the value in the middle of the double bottom is approximately 120. 287-120=167.
- The position of breaking through the neckline is approximately at 262. The target in the first equal distance increase is 429. 262 + 167 = 429.
Although the stock price of Tesla rose to 470 later, we had already made a substantial profit at the target price point of 429.
Case4 SOFI (2022-2025, Daily Chart)
After experiencing a significant decline in 2022, the stock of SoFi entered a long period of oscillation and consolidation. After two years of bottom oscillation and consolidation, in the second half of 2024, the stock of SoFi effectively broke through the neckline. For many stocks, the longer the period of bottom consolidation, the more powerful the breakthrough of the neckline will be in the later stage.
How to predict how high the SOFI stock price will rise through powerful technical analysis?
- The value in the middle of the neckline is approximately 11, and the value in the middle of the double bottom is approximately 5. 11-5=6.
- The position of breaking through the neckline is approximately at 11.5. 11.5+ 6 = 17.5.
