How To Trade The V-Bottom

V-Bottom occurs when price creates a V-shaped bottom at a support level. This is one of the least known chart patterns, but once clearly identified it can be a great entry point. It it especially good for breakout traders, as this is the only way of trading this pattern. We will start by presenting the general appearance of the pattern, teach how to trade it and finally present several examples.

Appearance
The V-Bottom is a bottom with a sharp slope and quick movement between low to high. While the Double Bottom is slow and curly, this V-Bottom is a quick pattern when price moves quickly. It can be identified by the long candles that it is built of. While other bottom patterns like the Round Bottom or Double Bottoms are slowly created, this one is created swiftly.

Illustration

How To Trade
The V-Bottom is traded only in breakout. Breakout occurs when price breaks the resistance neckline, like in Figure 2.

The target for the V-Bottom is projected in this way:
The size of pattern is defined as the neckline minus the lowest low. The size of the pattern is projected after the breakout, by adding it to the price where breakout occurred. Make sure that the Risk:Reward ratio is at least 1.5 before entering.

This is a reliable chart pattern, though it is not common and hard to identify. Trade with caution, as breakouts tend to be a tricky signal to enter on.

Examples