Double Bottom Pattern: A Bullish Reversal Signal in Technical Analysis
The Double Bottom Pattern is one of the most reliable bullish reversal chart patterns used by traders. It indicates that a downtrend is potentially ending and an uptrend may begin. This pattern forms the shape of the letter “W” on the chart.
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What is a Double Bottom Pattern?
The double bottom pattern occurs when an asset makes two low points at approximately the same price level, with a peak in between. This pattern suggests strong buying interest and signals that sellers are losing momentum.
- First Bottom: The price declines and then rebounds.
- Second Bottom: The price retests the previous low but fails to break it, showing support.
- Neckline: The resistance level between the two bottoms. A break above this confirms the pattern.
How to Trade the Double Bottom Pattern
Here’s a step-by-step guide to trading this pattern:
- Wait for Confirmation: Don’t enter until the price breaks above the neckline.
- Entry Point: Enter a buy (long) position once the price closes above the neckline.
- Stop Loss: Place the stop loss below the second bottom to manage risk.
- Target Price: Measure the distance from the bottoms to the neckline and project it upward from the breakout point.
Example
Let’s say a stock hits a low of ₹200 twice and faces resistance at ₹250. After breaking ₹250:
- Entry: ₹252 (above neckline)
- Stop Loss: ₹198
- Target: ₹250 + (₹250 - ₹200) = ₹300
Key Characteristics
- The second bottom should not break the first bottom significantly.
- Volume often increases on the breakout, confirming the move.
- Best results on higher timeframes like 4H, daily, or weekly charts.
Conclusion
The Double Bottom pattern is a classic bullish reversal setup. With proper confirmation and risk management, it offers high-reward trade opportunities, especially after strong downtrends.
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