Double Bottom Pattern: How to Trade Stocks and Crypto

The height is determined by measuring the distance between the support level and the peak or high, and adding this distance to the breakout point to get your target price. The subsequent price rally forms the neckline of the double bottom pattern, signaling a possible reversal of the previous downtrend. The pattern’s completion occurs when the price falls again to retest the support level, forming the second bottom, which is often accompanied by diminishing selling pressure and increasing buying interest.

Is a Double Bottom Pattern a Continuation or Reversal Pattern?

1. These patterns appear when an asset’s price moves in a similar pattern as either an ‘M’ for double tops or a ‘W’ for double bottoms.
2. The double bottom pattern signals a significant shift in market sentiment from bearish to bullish.
3. Note that longer timeframes provide more accurate signals, including reversal ones.
4. The price of the security moves up after the first bottom, and it will hang around the high for some time, indicating a hesitation to go downward again.
5. The double bottom pattern is traded in scalping strategies, day trading strategies, swing trading strategies, position trading strategies, and investing strategies.

To put it in buyers/sellers terms, the sellers have created a downtrend that came to a low point (support), which led to a rebound or short-covering. The rebound that follows is considered corrective within the overall downtrend, meaning the sellers are still in place, and they eventually make another try for the downside. The second low of the pattern is within 3% to 4% of the prior low, contributing to the validity of the pattern. With the second bottom now in place, traders should reckon with a potential correction higher, or even a new uptrend, as a level of significant support has been reached and tested twice.

The major importance of the Stop-losses is to prevent large and uncontrollable losses in volatile trades. A stop-loss is designed to limit a trader’s loss on a security position that makes an unfavorable move. Another key advantage of using a stop-loss order is you don’t need to monitor your holdings daily. In the case how to trade double bottom pattern of the Double Bottom Pattern, the “Stop-loss” is placed just below the lows of the Double Bottom Pattern.

How to Trade Triple Bottom Candlestick Pattern

The price broke above the neckline at around 40,000 USD with a high volume and reached the target price at around 52,000 USD in February 2021. Then, enter a long position at the breakout point or on a pullback to the neckline. Additionally, set a stop-loss order below the support level or the lower low of the pattern, as well as a target profit based on the height of the pattern.

Leaving the trade early may seem prudent and logical, but markets are rarely that straightforward. The net effect is a series of frustrating stops out of positions that often would have turned out to be successful trades. According to a fundamental rule of technical analysis, the twice-touched low establishes a support level, preventing sellers from lowering the price and allowing buyers to push it higher. The double bottom pattern is easily recognizable, often resembling the letter “W.” This pattern signals a potential reversal from a downtrend to an uptrend.

1. The clue to watch for is another bottom around the earlier low, followed by bullish confirmation in subsequent periods, for example, days or weeks.
2. The high point between the two bottoms represents the neckline of the double bottom pattern from which you can calculate a theoretical price target.
3. Double-bottom and double-top chart patterns can be used to identify possible support or resistance levels.
4. Stock markets are highly volatile and unpredictable, so if an investor does not put a stop to loss, then their losses could escalate to a level where they could endanger your trading capital.
5. The pattern’s price peak component forms when prices rise from the left swing low point and then pulls back, forming a peak or high point.

The pattern should be validated by a change in market fundamentals for the security itself (for example, better earnings), as well as the sector that the security belongs to, and the market in general. The fundamentals should reflect the characteristics of an upcoming reversal in market conditions. Also, volume should be closely monitored during the formation of the pattern. A spike in volume typically occurs during the two upward price movements in the pattern. These spikes in volume are a strong indication of upward price pressure and serve as further confirmation of a true double bottom pattern.

Double tops and double bottoms in trading summed up

The fifth double bottom pattern trading step is to conduct post trade analysis after trade position completion. Include trading notes, entry price and exit price information, and annotated charts in the post trade analysis log. The second double bottom pattern trading step is to enter a buy trade when the market rises above the horizontal resistance level. Fourthly, the price moves higher from the support zone and starts to penetrate the resistance area’s price breakout level rendering the double bottom pattern formation completed. Antonio Di Giacomo studied at the Bessières School of Accounting in Paris, France, as well as at the Instituto Tecnológico Autónomo de México (ITAM). He has experience in technical analysis of financial markets, focusing on price action and fundamental analysis.

Price charts simply express trader sentiment and double tops and double bottoms represent a retesting of temporary extremes. If prices were truly random, why do they pause so frequently at just those points? To traders, the answer is that many participants are making their stand at those clearly demarcated levels. A trader can trade the Double Tops chart pattern by opening a short position and selling currency pairs before prices start to fall continuously. Since the Double Tops indicate a bearish trend reversal, the traders are able to make an exit decision well in time as soon as the second top occurs in the market.

The Double Bottom Pattern is a bullish reversal pattern that occurs at the bottom of a downtrend. The Double Bottom pattern resembles the letter “W” due to the two-touched low and a change in the trend direction from a downtrend to an uptrend. When a double top pattern occurs, it may alert the trader of a trend reversal, and when a double bottom pattern occurs, this may alert the trader that a bullish trend is underway.

You can then use these patterns to predict the future movement of a financial asset. You can use double tops or double bottoms to trade forex when you create an account with us. If you identify a double top pattern, you could open a short position after the second peak, and with a double bottom, you could open a long position after the second low. It is made up of two peaks above a support level, known as the neckline. The first peak will come immediately after a strong bullish trend, and it will retrace to the neckline.