The Definitive Guide to Double Bottom Pattern
The double bottom pattern is a reversal indicator highlighting the bottom of a stock or Cryptocurrency and potential price rise. The double bottom reversal is a common and highly effective formation and is a great situation to open a long position.
The pattern looks like “W” and takes effect in a strong downtrend. The double bottom pattern is easy to spot and has one of the highest success rates. They are an important part of technical analysis used by stock or Cryptocurrency traders.
Keynotes of double bottom formation
- The double bottom reversal forms in a market downtrend
- The pattern consists of a neckline or resistance level and also showcase strong support for a coin
- Double bottom is most effective in the daily chart but also works perfectly in low timeframes
- The support line in double bottom reversal formation is not always straight and is usually slightly tilted.
Breaking down the double bottom pattern
Prior Trend: With every reversal pattern there must be a previous or existing trend. Same is the situation with the double bottom reversal, and in this case, the previous trend must be a downtrend. The continuous downtrend pushes the price to a newer low and investors cut their losses for a profitable entry.
The first peak: After a continuous downtrend, the first peak takes place and volume starts to grow, early investors place their orders and price starts to move upwards. However, the price fails to break the resistance or neckline and eventually falls back to the previous lows. The outcome completes half of the double bottom reversal pattern.
Second peak: Traders see the price sitting at the bottom and this signals the upcoming bull signals. The stock or Cryptocurrency traders place market orders and higher bids on the price driving it up to the resistance level. Eventually, the Fear of Missing Out (FOMO) traders step in increasing the volume and breaking the resistance level. The price makes a new daily high and double bottom pattern gets completed.
However, it is also important to note that there might be a retest of the price at the resistance level before further advancement.
Double bottom trading in practice
The double bottom pattern is not a common occurrence in stock or Bitcoin charts. However, when it does, it means a reversal in the bearish trend and traders expect a major price rise. The intensity of the pattern also depends on the time frame it takes place. Below are the charts of Litecoin and Ethereum depicting a successful and failed double bottom reversal formation.
A double bottom breakout is very effective for many traders. There is a high success rate of an uptrend and several individuals use this analysis to place their long calls. The double bottom reversal has a high probability of making profits and you are not catching the falling knife to increase your portfolio holdings. Besides, there is a lack of selling pressure upon its formation and it provides a quick way to make decent profits.
Do you know: Double top chart pattern is the opposite of double bottom and signals an incoming downtrend. It has a higher success rate and rarely occurs on Stock or Crypto charts.