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39  Figure 12.4 W lower, Starwood Hotels, 200 days. Retest at a lower level.
Part III: Bollinger Bands on Their Own side of the formation is a lower low, fear and discomfort characterize the crowd. W2, W3, and W8 patterns are good examples. Investors who bought at the prior low are shaken out, and few have the courage necessary to get back in; at the same time new money is scared away by the lower low. In Wyckoff (referring to technical analyst Richard D. Wyckoff) terms this is called a spring. Usually the left-hand side of a W formation-the first low, that is-will either be in contact with the lower band or be outside the lower band (Figure 12.5). The reaction rally will carry price back inside our bands, often tagging or exceeding the middle band in doing so. Then, the subsequent retest will occur inside the lower Bollinger Band. Remember, our definition of low is the lower Bollinger Band. So if the first low occurs outside the band and the second low occurs inside the band, the second low is higher on a relative basis even if it is lower on an absolute basis. An absolute W8 may turn out to be a relative W10, a much easier formation to deal with. Thus the Bollinger Bands can help you diagnose and act on  6/00 9/00 10/00 11/00 12/00 1/01 Figure 12.5 W bottom, Bollinger Bands, AT&T Wireless, 140 days. A new absolute low, but not a new relative low.
Chapter 12: W-Type Bottoms the trickiest of formations, the shakeout, where the potential for gains is great. There will be examples of secondary lows occurring at or beneath the lower band and/or making new relative lows (Figure 12.6). These do not fit our categorization and are not, for our purposes at least, valid W bottoms. Please reread Chapter 4, "Continuous Advice," at this time if the concept of an undi-agnosable formation rubs you the wrong way. A stock does not have to trade beneath the lower band at the first low for a classic W bottom to be valid (Figure 12.7). All that is really called for is that price be relatively higher on the second retest. This requirement can be satisfied by price nearing, but not touching, the lower band on the initial pass, then trading only halfway between the lower band and the middle band on the retest. %b is very helpful in this regard, as will be discussed later. Often bottom formations such as the double bottom, or W, contain smaller formations within them, especially at the next higher level of magnification. So if you are examining a bottom  30 L l I I I I I I 7/00 6/00 9/00 10/00 11/00 12/00 1/01 Figure 12.6 W bottom, lower Bollinger Band broken on right side, Ashland, 150 days. The excursion outside the lower band breaks the rules.
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