How To Trade Double Bottom

Double Bottoms are a group of patterns that appear after an downtrend and signal its reversal. These are reliable patterns that allow us to join trends early and usually with great Risk:Reward ratio. Bottoms are should appear on a Support level.

Standard Double Bottoms
This chart pattern occurs when price tries to break a support level twice and fails - each attempt is called a Bottom. It is also called a 'W' pattern because of its visual resemblance. The price level between the bottoms is called the Neckline and upon its breakout the Double Bottom is confirmed. Until the neckline did not break, the pattern is not yet a Double Bottom as it can evolve into different pattens such as the Triple Bottom.

Pullback to the neckline occurs on 60% of these patterns and we will trade it. We will not trade breakouts of these patterns, as it is a weak signal. Read 'Trading the Pullback' to learn more about Pullbacks and Breakouts.

Adam and Eve Bottoms
These are stronger version of the Double Bottom, in which the second bottom is not sharp bottom but a curly one that takes more time to evolve.

This is a stronger type of Double Bottom, as the curly and rounded movement indicates weakness of the sellers. Sellers could not push prices down quickly, instead the movement was slow. These patterns are usually stronger than the usual Double Bottoms.

Volume
Volume should by lighter on the second bottom - to indicate the sellers' weakness and lack of power in the downwards movement. Lighter volume also indicates less participation of sellers - which confirms the Bullish reversal.

How To Trade
There are several ways to trade this pattern: The Conservative Way which is the known way, and the Aggressive way which is yet unknown to many traders.

The Conservative Way
The Conservative trader will enter at the breakout of the neckline, or at the pullback to the neckline after the breakout - for extra assurance.

The Aggressive Trader
The Aggressive Trader will attempt to catch the trade from its second bottom. It is an undocumented idea, but it can give you immense advantage over other traders, as the number of people who trade the Double Bottom this way is very small. In order to trade the Aggressive way, trader must wait for a reversal after one bottom, and once it is confirmed with Japanese Candlestick Formation - enter the trade.

Example of Trading

Fig. 1: Examples of Aggressive and Conservative trades at a Double Bottom

Fig. 2: Example of Adam and Eve Double bottom

Note:

*If after aggressive entry, price stops at the neckline, immediately close the trade. As long as the neckline isn't broken, this might evolve as a different pattern. This is one drawback to the aggressive attitude: trader is not sure of the actual nature of the pattern.

In order not to miss future analysis and trades, I suggest you subscribe to updates here:
Subscribe To Updates