If the price rallies sharply off the second bottom, buying on the breakout could involve a considerable price risk. This is because in many cases, the only viable support point unde r which to place a stop is the second bottom itself. Such a situation is shown in Fig. 8-3. However, during the formation of many secondary bottoms, the price declines unde r the constraint of a resistance trendline (Fig. 8-4). When it breaks above the line, more often than not this signals that the pattern will be completed with a break above the bounce rally high. I call these Chinese double bottoms because the retracement toward the secondary low can often be slow and very torturous to those who are long. The great advantage of these Chinese double bottoms is that they provide a potentially high-reward but low-risk buying opportunity. Generally speaking, the longer the (Chinese) torture, the more bullish the situation when the breakout finally develops. Chart 8-6, featuring UST, offers a good example. We see the 1-2-3 volume pattern along with a slow but steady decline held back by the dashed (torture) down trendline. When the price breaks above the trendline, a sharp rally is triggered. When a line is fairly steep, as this one is, a powerful rally often develops. Notice the low risk, measured by the distance from an early breakout to a point just below the second bottom.
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