There are many variations on the theme, including rounded bottoms, triple bottoms and V-bottoms. The problem is, you never know what type you're in until after the fact. The most common variation is the double bottom, in which a market prints one higher low before rallying out of a base.

Percentage profit potential peaks at the beginning of a new uptrend. So being right at a bottom can produce a significant reward. But bottom-picking can be dangerous business. Make sure to weigh all evidence at your disposal before jumping into a falling market, and apply defensive risk management to ensure a safe exit if you are proven wrong. For example, take losses immediately if the prior low gets taken out.

Bottoms occur in downtrends. There's added danger because traders will often believe a bottom before it's confirmed by the price action. Fast execution can cost you a lot of money in this volatile situation. Less experienced traders should sit on their hands and let others take the bottom bait. There will still be plenty of good trades if and when the market moves higher.

Spectacular reversals offer little profit if price can't climb out of the hole it fell into in the first place. Keep a stop loss under the prior low, and consider an earlier exit when the first bounce runs out of steam. Price can gather downside momentum at broken lows as it searches for new support.