Double Bottom Pattern

"Double Bottom" patterns form when prices fail to make new lows at a significant bottom area. Most of the time, the lows on the two "bottom bars" form within 2 to 5 percent of the applicable price range. "Double bottom" patterns are easily detected after the apparent formation, and can be traded with good confirmation signals. Volume may provide a good confirmation signal as the volume in the first swing would be heavier than the volume in the second swing. Volume may also be heavier on the breakout. If the breakout volume is weaker, it may be signaling a third bottom.

Trade:

A "Double bottom" can only be traded after confirmation of the pattern breakout. Confirmation of the pattern occurs when prices close above neckline. Enter a "long" trade above the high of the breakout bar from the neckline.

Target:

"Double bottom" patterns also have a good risk/reward ratio. The first target would be 100% of the swing range of the pattern. The second target would be 127% to 162% of the depth of the "double bottom" pattern.

Stop: "Double bottom" patterns do fail. This pattern failure occurs if the price closes below in the middle of the pattern for multiple bars. Trading below the bottom of the pattern could be a signal of triple bottom. Place a "stop" order below the middle of the pattern to protect the trade.

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