What are Descending Bottoms?

Eric Tallberg
Eric Tallberg
Businessman with a briefcase
Businessman with a briefcase

In financial or stock markets, descending bottoms are a charted pattern of the falling price of a particular security or group of securities, which are also known as stocks. Descending bottoms indicate a bearish or falling trend in the market for the worth of those particular stocks. When financial indexes point toward the infamous bear market, investors and businesses become nervous. Many stocks in a bear market are selling for a low price thereby gaining the investor fewer dividends and the seller less operating capital. In a bull market, investors and businesses are tending to gain higher dividends and capital. A bearish market, driven by descending bottoms, is a cause for concern. A bullish market that is driven by ascending tops is, of course, a cause for optimism.

When analysts wish to investigate the value of a specific stock or group of stocks, they will chart the performance of the stock or stocks over the course of a particular time period. These charts are a visual rendering of collected data within a specified time frame. This time frame can be hourly, daily, monthly or yearly depending on the volatility of the stock or stocks and the immediate demand for the charted information. The usual time-line for charting descending bottoms is monthly.

In a bearish market, the chart pattern of the indicated securities will tend lower, and analysts will begin to look specifically for descending bottoms. These descending bottoms are the lows noted from month to month. Should the low or bottom spike on the chart pattern for one specific month, rise shortly thereafter and then drop to an even lower value in the next month, and yet lower the next, this is a descending bottom. Low spikes indicate less confidence by investors in the value of the stock. As a further consequence of descending bottoms, the highest value of the charted stocks will descend as well, thus the high spikes will spike lower as the lows reach even lower than the previous lowest spike.

All of the charted spikes, low and high (descending bottoms and ascending tops) of a stock or group of stocks, are averaged out from a specified time in the past to the instant the information is needed. Analysts are then able to note a trend in particular stocks or groups and will effectively gain tangible insight regarding at least the immediate future of market tendencies, bearish or bullish. This is what is meant by an averaging of the market.

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      Businessman with a briefcase