Double Bottom Chart Pattern

Before discussing this pattern, we should be familiar with “Double Top, support and Resistance .”

The double bottom chart pattern can be termed “reversal pattern,” which occurs after a downtrend. It is inverse to the double top. This pattern will suggest to us “buying opportunities.”

 How Do We Identify The Double Bottom Pattern?

There are two lows where the price attempted to break through a support level twice before reversing to the upside. There is also a neckline, which is considered the top part of the pattern.

The illustration chart below shows the model of a double bottom pattern.

Number 1: First low

Number 2: Second low

Number 3: Neckline

A double bottom is formed when sellers attempt to breach a support level twice. In the illustration, we can note that:

Number 1: Buyers enter the market at a support level and prevent the sellers from pushing the price down lower.

Number 2: The seller's retreat and the buyers gain the momentum to rally the price back up after a second failed attempt at making new lows.

Practice Session

Exercise 1: Identify the double bottom pattern Show exercise

Exercise 2: Identify the double bottom pattern Show exercise

Technique 1: Trading the double bottom:

Enter a long position once the price breaks through the pattern's neckline. The illustration chart below indicates, “As the price moves up, the neckline (grey line) is broken.”

Number 1: First low

Number 2: Second low

Number 3: Neckline

EL1 Entry when the price breaks through the neckline.

SL2 Stop loss goes below the pattern.

TP3 Profit target goes the same distance as the pattern's height, up from the neckline.

The “Stop-loss” is placed just below the lows of the double bottom pattern, and the “Profit target” is measured by taking the height of the actual pattern and extending that distance up from the neckline.

Practice Session

Practice where to place the entry, stop loss, and take profit according to Technique 1 in the following exercises:

Exercise 1: Where to place your access, stop loss, and profit target Show exercise

Technique 2: Trading the double bottom

“Wait” for the price to trade above the neckline (broken resistance) and then look to place a buy order on the retest of the neckline as support (broken resistance now becomes support). The stop loss would go below the new support area, and the profit target would remain the same as in the first illustration).

The chart below demonstrates the second way a trader can trade the double bottom pattern showing the entry (blue), stop loss (red), and take profit levels (green):

Number 1: First low

Number 2: Second low

Number 3: Neckline

Number 4: Height of the pattern (red shaded area)

Number 5: Same distance as the height of the pattern (red shaded area)

EL1 Long entry after the price retests the neckline as support (in the red shaded area)

SL2 Stop loss goes below the new support level

TP3 Profit target goes the same distance as the height of the pattern, up from the neckline

You can practice where to place entry, exit, and take profit according to method 2 in the following exercises:

Exercise 1: Where to place your entry, stop loss, and profit target. Show exercise.

Nutshell

An overview of the lesson discussed so far:

Buying opportunities: The double bottom chart indicates a possible price and potential increase.

 Two Techniques Can Be Adopted To Trade The Double Bottom.

Trade the pattern: On the neckline breakout, place the “stop-loss” below the way and the “profit target” the same height as the pattern, up from the neckline.

Another technique adopted to trade: It is after the price has broken through the neckline and retested as support. The stop loss goes below the support level, and the profit target goes the same distance as the pattern's height, up from the neckline.