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. Double tops and bottoms are important technical analysis patterns used by traders. The double bottom pattern entails two low points forming near a similar horizontal price level and signifies a potential bullish reversal signal. A measured strengthening in price will occur between the two low points showing some support at the price lows.
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 Candlestick 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 Top resembles M pattern and indicates bearish reversal whereas Double Bottom resembles W pattern and indicates a bullish reversal. The Double Top and Double Bottom chart patterns are usually formed after consecutive rounding tops and bottoms.
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.
Entering the trade requires waiting for a confirmation candle to close above the neckline. This technique is viewed as more risk averse but greater probability of a positive trade although risk-reward could be far less in this instance.
It is important to note that trading against a strong downward trend should be approached with caution even with a double bottom formation.
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
A Double Bottom is a chart pattern where the price holds a low two times and fails to break down lower during the second attempt, and instead continues higher. The double bottom is frequently used in the forex and equity markets as buy/bullish signals. The charts below show how this pattern is utilized in both markets.
A double bottom is an indicator of positive signals as the stock’s reached its low, and the second bottom will mostly be followed by a continuous increase in the stock price. To find the measured move objective for a double bottom pattern, you simply take the distance from the two bottoms to the neckline and extend that same distance to a higher, future level in the market.
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.
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