Double bottom

[John Aaby]

What is the double bottom pattern and how can I trade it effectively?

[Koby Horner]

Hi John, thanks for the question. 

Both double bottom and double top patterns are reversal chart formations. They signal that the dominant market side has started to lose momentum, which is opening the door for a reversal and change of the trend direction. 

Double bottom is a bullish reversal pattern that occurs near the end of a downtrend. On the other hand, the double top takes place at the highs when there are two equal peaks. 

In this case, the buyers have failed to extend the series of the higher highs by creating the double top pattern as the second high is not registered as a higher high, but rather as an equal high. This suggests that the momentum is waning, indicating a potential change in the trend direction.

For instance, in the chart above, we see that Tezos is creating a potential double top pattern. You see that the second peak is not registered as a higher high, but rather as an equally high and that the buyers failed to close above the horizontal resistance, although the price action briefly moved higher. As a result, the sellers are able to capitalize on this weakness to push the price action lower and erase previous gains. 
In this case, the double top pattern is still in the making. A break below the $2.25 mark, which is a neckline, would open the door for the activation of the pattern. We would consider the pattern as completed if the price would reach the area just below the $1.50 mark.

Edited July 9, 2023 by Rishabh Tyagi

[Brundle Mark]

Hi John,

Thanks for the question. 

The double bottom is a bullish reversal pattern that takes place at the end of a downtrend. Its occurrence signals that the sellers, who were in control of the price action so far, are losing momentum and that a change in the price direction is likely. 

Due to its design, the double bottom pattern looks like a letter W. The double bottom chart pattern stems from a downtrend and it is finalized in an uptrend.  Therefore, it is considered to be a bullish reversal pattern. The pattern becomes active once the price action breaks above the neckline. 

A close above the neckline gives you an entry. The stop loss should be placed below the neckline as any return below it invalidates the formation. Take profit, on the other hand, should be calculated by measuring the distance between the bottom and the neckline.

In general, the double bottom is considered to be one of the most powerful reversal patterns out there. 

 

[Rishabh Tyagi]

The formation of consecutive higher highs, near support or oversold levels is referred as double bottom pattern. 

It is a bullish pattern, indicating a reversal. 

You can trade the setup when you see a breakout after the 2nd high. 

To learn more, you check out the article: https://www.asktraders.com/learn-to-trade/technical-analysis/double-bottom-pattern/ 

 

Edited June 1, 2023 by Rishabh Tyagi