How Double Bottom Pattern looks like

3 июн. 2022 г.

What is double bottom pattern?

A double bottom pattern is a technical analysis charting pattern that describes a change in trend and a momentum reversal from prior leading price action. It describes the drop of a stock or index, a rebound, another drop to the same or similar level as the original drop, and finally another rebound.

How do you trade double bottom patterns?

First low – The market bounces higher and forms a swing low. At this point, it’s likely a entrancement in a downtrend.

Second low – The market rejects the previous swing low. Now, there’s buying pressure, but it’s too early to tell if the market could continue higher.

Break of neckline – The price broke above the Neckline (or Resistance) and it signals the buyers are in control — the market is likely to move higher.


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The False Break: How to trade the Double Bottom Pattern and profit from “trapped” traders

Now…

When you trade the Double Bottom, you must pay attention to the time and space between the lows — the larger the “gap”, the better.

Why?

Because when the lows are far apart, it gets the attention of more traders who could push the price higher.
As the price breaks below the first low, bearish traders will short the markets and have their stops above the lows.

But if the price quickly reverses higher, the short traders are “trapped”.

And you can take advantage of it by going long, anticipating if the price moves higher, it’ll trigger their stops and push the market in your favour.
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The Double Bottom Breakout Technique

Here’s the thing:

You don’t want to “chase” a breakout after the Double Bottom is formed because the price is likely to reverse lower.

Instead, you want to see strength from the buyers before buying a breakout.

Here’s how…

1) Identify a potential Double Bottom
2) Let the price to trade break above the previous swing high
3) Wait for a weak pullback to form (a series of small range candles)
4) Buy on the break of the swing high