What Is a W-Bottom?
After decline, price hits support, bounces to a middle peak, returns to support near the first low, then rallies again. The two lows should be roughly equal—within a few percent on dailies. The middle peak sets neckline resistance. W-bottoms show sellers failed twice to push lower—demand absorbed supply at the zone. They are more reliable than single V-bottoms because retest confirms support. Duration from first low to neckline break can span weeks for swing setups.
Second low on lighter volume than first suggests selling exhaustion—a constructive W-bottom detail.
How Do You Validate the Pattern?
Two distinct lows with visible middle rally between. Support zone horizontal or slightly ascending—descending second low weakens pattern. Neckline across middle peak highs. Time symmetry between legs is approximate. Volume often higher on first low, lower on second, rising on breakout. Distinguish from head and shoulders bottom—W has two lows, not three with center lowest. Shallow W after mild pullback may be bull flag context, not major reversal.
Mark support as zone not single tick—retests within zone still qualify if rejection is clear.
What Confirms the Neckline Breakout?
Close above neckline on volume above average. Break after second low holds without undercut. Retest of neckline as support offers entry. RSI trending up through second low formation supports momentum shift. Gap breakout acceptable if holds on pullback. Premature break before second low completes is not W-bottom—could be V or failed pattern. Relative strength improvement versus sector on break day adds confidence.
Failed second low that undercuts first by wide margin invalidates W—may become breakdown continuation.
Where Do Stops and Targets Go?
Stop below second low or below support zone. Measured-move target adds depth from lows to neckline, projected from breakout. Partial at one target; trail below higher lows. If middle peak was shallow, measured move may hit quickly—scale out. Entry on retest of neckline improves risk versus chase. Position size from stop width—volatile stocks need smaller shares.
Multiple W-bottoms in sequence can stair-step trend change—each break builds higher base.
What Causes W-Bottoms to Fail?
Second low breaks materially below first—support failed. Low-volume breakout fades. Bear market rally breaks neckline then fails at overhead resistance. Triple bottom attempt that never breaks neckline wastes time. Confusing oscillation in range with W. News gap down through support after pattern looked complete. Exit on neckline break failure—close back below after breakout.
Compare W depth to prior trend—shallow W in strong downtrend often produces only relief rally.