The Double Bottom is seen as a possible bullish reversal pattern. The pattern appears in a downtrend and can signal the beginning of an uptrend.
The Double Bottom looks like the letter W.
What is the Double Bottom Candlestick Pattern?
The Double Bottom signifies that the price falls to a bottom and rallies its way up before falling again. These two bottoms touch a support level and are similar in width and height.
Traders look for the candle next to the Double Bottom to confirm a trend reversal.
The pattern describes the battle between the bulls and the bears. At first, the bears are dominating; then, the bulls take control. The bears retake charge before the bulls push the price up again.
When there is a clear recognition of the pattern, a neckline is drawn by connecting two high points at a resistance level.
This is what the pattern looks like on the charts:
Many analysts believe that the first bottom should drop 10-20%, and the second bottom should form within 3-4% of the first bottom.
The formation of the Double Bottom results in minor uptrend or downtrend and identifies the reversal at the start of an uptrend.
The inverse of the Double Bottom is Double Top Candlestick Pattern. It surfaces in an uptrend and is a bearish reversal pattern. The Double Top resembles the letter M.
How to use the Double Bottom Candlestick Pattern?
When the Double Bottom shows on the charts, it can signal the markets may rise in price. As the buyers are more dominating than the sellers, the Double Bottom is used as a buy signal but you can conduct other forms of analysis to confirm this.
Traders may look to enter the trade after the formation of the pattern, set a stop-loss at the low, and exit the trade on a high level.
An aggressive trader may enter the trade right after the formation of the Double Bottom. However, I would personally wait after the appearance of the pattern for the confirmation. This is because sometimes the Double Bottom can give false signals. For example, even if the pattern appears, the price is moving downwards.
To solve this problem, the Double Bottom can be used in conjunction with the moving averages and oscillators like the RSI or Stochastics.
The chart above describes that right after the development of the Double Bottom, the Stochastic identifies an overbought condition. This means the Double Bottom is showing a possible signal.
Traders also observe the volume after the establishment of the Double Bottom. If there is an increase in the volume, this can be a sign of an upward price movement.
A quick note is; traders often look for the Double Bottom Pattern on longer timeframes. The longer the duration between the two bottoms, the higher the possibility of the Double Bottom’s success according to some experts.
Double Bottom Candlestick Pattern trading strategy
As mentioned above, Double Bottom can be used on longer timeframes and the pattern is often used for long-term trading strategies.
Although the pattern can emerge on shorter timeframes, it may not be considered as valid pattern and can generate false signals.
Double Bottom Candlestick Pattern buy strategy
- Locate the Double Bottom in a downtrend.
- Wait for the price bar to go bullish before entering.
- Enter the trade after the formation of the pattern.
- Set a stop-loss near the recent low from the pattern.
- Exit the trade on high.
Double Bottom Candlestick Pattern conclusion
The Double Bottom Candlestick Pattern can be used on your trading platform charts to help filter potential trading signals as part of an overall trading strategy. The Double Bottom can help to identify a potential trend reversal.
I would prefer to use the majority of candlestick patterns such as the Double Bottom Candlestick Pattern on the 1-hour charts and above. I tend to find that these charts contain less market noise than the lower time frames and thus give more reliable signals for my forex trading strategies. This also means that I spend less time staring at charts and can also set alert notifications to let me know when price has reached certain levels, candlestick pattern has been formed or a particular indicator value has been reached.
The Double Bottom Candlestick Pattern is just one method of market analysis amongst thousands. I would not build a trading system alone, but rather combine with other technical indicators such as moving averages, Parabolic SAR, Stochastic Oscillator, RSI, ADX and price action analysis.
Of course, every trading system will generate false signals which is why money management is so important. I would personally be implementing sensible money management and only take traders that give me a favorable risk to reward ratio, ideally of at least 1:3. This means that one losing trade does not wipe out consecutive winners.
The methods of implementing the Double Bottom Candlestick Pattern into a trading strategy that are outlined within this article are just ideas. I would always ensure that I have good money management, trading discipline and a trading plan when using any forex strategy.
Furthermore, I would combine multiple technical analysis, fundamental analysis, price action analysis and sentiment analysis to filter all entries. You should trade forex in a way that suits your own individual style, needs and goals.
If you would like to practice trading with the Double Bottom Candlestick Pattern, you can open an account with a forex broker and download a trading platform. If you are looking for a forex broker, you may wish to view my best forex brokers for some inspiration.