Friday, January 27, 2023

Double Bottom

The double bottom pattern follows after a long period of down-trending price action and is formed by two consecutive troughs that are approximately equal to each other, with a peak in between. The appearance of the double bottom usually signals that the immediate and/or long-term trend has reversed to a bullish one after an extended period of downward movement. However, when a double bottom does appear, one should pay close attention to whether or not the pattern has been confirmed by a subsequent break of resistance. Following the break, volume usually expands during price retracements, signalling strong demand. One could also use technical tools such as the Money Flow and On-Balance-Volume indicators to study the buyer-side strength. Moreover, the previous resistance that was broken will now act as a support level.

The above example shows the price in a down-trend from points A to B. It then hit a support level and subsequently rallied back and was in a trading range for about 2 months. At point C, the price then retested the low set by point B and rebounded nicely off of it. Afterwards, the price rallied strongly as the double bottom began to form. A confirmation, however, would be needed to signal that the trend has indeed reversed and this may be issued by a break of resistance at a previous high, point A.

Chart Patterns Explained

Continuation Patterns

Reversal Patterns

Candlestick Patterns

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