Identifying a W bottom using Bollinger Bands $CAT

Caterpillar (CAT) made a high back in mid February and it had been coming down until it finally made a bottom in mid July.  Bollinger Bands can assist you in finding a bottom and allow you to have a higher degree of success in implementing this trade.

What we are looking for here is a W bottom (tight double-bottom).

• If we look closer at this area, you will want to see the first leg down making a low outside of the lower Bollinger Band.
• The first bounce upwards to the middle of the W should get you as close to the middle band as possible.
• The second leg down that forms the second bottom should stay "within" the lower band and you can enter the position on a long basis.  If you are more conservative and want additional confirmation, you can wait for an upward move in higher than average volume as seen down below in the thick blue arrows.

This can also be used to help identify tops with a M top pattern as well, which I can go over in a later post.