Double bottoms are significant to short-term traders because they often indicate a potential major change in sentiment / trend. The pattern can be used on all time frames; many powerful intraday and long-term bull markets (rising price trends) are conceived from this simple yet effective setup.
Double bottoms are reflections of very strong support levels. When prices fail to break support in down trending markets on multiple occasions, we are likely to see a powerful change of trend. Such reversal signals are much more meaningful after extended downtrends. The common entry point (point where a trader opens a position) on a double bottom trade is on a move through the high of the two troughs (marked by Standard Entry on the chart below). The high represents secondary resistance, which when penetrated, confirms a price reversal. Stops are typically placed around the lows of the pattern because a move below the lows would negate the premise of the pattern.
Here is a real example daily chart. The break of secondary resistance levels between the two troughs made a good entry point to buy and a decent point to exit short positions (buy back if a trader sold short); a stop could have been placed at the second low of the pattern because this is an area where breakdown traders would probably look to re-enter shorts.
While the double bottom is in no way a "holy grail", it is a very effective trading tool that allows traders to get in early on potential changes in the supply / demand picture. All technical traders should look to include them in their trading repertoire.
