Double Bottom Pattern: Definition, Formation, What It Indicates, Parts, and Trader’s Thoughts

Accumulating long positions in the zone between support and resistance levels provides bullish momentum, and the price breaks out the neckline of the W pattern. The price consolidation above the broken-out level is a signal to enter a long trade. Let us consider that you are trading USD/EUR with a current exchange rate of 2. The market is currently in an uptrend, and the currency pair makes its first high at 4.5 and trades near it for some time. The price corrects itself and starts trading around 2.7, still in an uptrend. The second high is made shortly as the currency exchange rate reaches the price level of 3.5, which is not as huge as the first top but still significantly towards the upward direction.

Choosing when to enter the trade after the pattern’s upper border breakout is always left to your best judgement. In a downtrend, price action finds the first resistance (1), which will be the horizontal resistance for the rest of the pattern formation. Both patterns not only serve as technical tools but also reflect underlying market psychology. The Double Bottom represents a failed attempt by sellers to push prices lower, resulting in a bullish sentiment as the pattern completes. Conversely, the Double Top suggests that buyers are losing momentum, leading to a bearish outlook as the pattern confirms.

They are one out of many tools and technical indicators that traders can use to help them to make decisions. If the double tops and bottoms pattern is not supported by a resistance and support level, they can provide false signals. A double top chart pattern is a bearish reversal signal, but when a double top is not confirmed with a support level, it creates false breakout signals. Similarly, a double bottom candle pattern or ‘w’ pattern is an extremely bullish reversal signal, but when a double bottom reversal is not confirmed with a resistance level, it creates false uptrend signals. The provision of accurate entry and exit points after a downtrend makes the double bottom an essential tool in forex trading. A double bottom pattern enables forex traders to identify an ideal entry point above the breakout point and set a stop loss below the support for risk management.

1. Double tops and bottoms work the same way in forex trading​​ as they do in other markets.
2. The double bottom pattern is among the critical forex terminology and formations that all traders should know and look out for to earn significant profits.
3. We have covered a lot of ground in this lesson, so let’s recap what we’ve learned about double bottom patterns.
4. But risk control in trading should be achieved through proper position size, not stops.
5. However, the upward momentum stops at the first peak and retraces down to the neckline.

Rounding bottom patterns will typically occur at the end of an extended bearish trend. The double bottom formation constructed from two consecutive rounding bottoms can also infer that investors are following the security to capitalize on its last push lower toward a support level. A double bottom will typically indicate a bullish reversal which provides an opportunity for investors to obtain profits from a bullish rally.

Therefore, the traders use this consistent pattern as a rule for placing the take profit order. The Double Bottom pattern is formed according to the same principle as the Double Top, just the other way round. Double Bottom chart pattern indicates the reversal of a downtrend and its end. Since it is a reversal pattern, before it is formed on the chart, there has to be a prominent upward movement of the price, evidencing the dominant force of the buyers. Although Double Top and Double Bottom patterns are fairly reliable indicators, false signals can occur. Traders should be vigilant and consider factors such as market sentiment, economic news, and geopolitical events to avoid falling into the trap of false breakouts.

Is a Double Bottom Pattern Profitable?

While trading in the financial markets, you have probably come across this pattern, looking like the letter W. Yes, The Double Bottom Pattern signals the reversal and the beginning of a potential uptrend. The Double Bottom predicts a change in direction and possibly the start of a new uptrend. The Double Bottom Chart Pattern is a bullish reversal pattern used in technical analysis. It consists of two distinct lows that are roughly equal and separated by a peak in between.

Price chart of AUDUSD in real time mode

Remember, just like double tops, double bottoms are also trend reversal formations. U.S. Government Required Disclaimer – Commodity Futures Trading Commission. Futures and options trading has large potential rewards, but also large potential risk.

How to trade the Double Tops and Bottoms chart patterns?

1. Stock markets are highly volatile and unpredictable, so if an investor does not put a stop to loss, then their losses could escalate to a level where they could endanger your trading capital.
2. Secondly, price rises temporarily to a resistance zone where the price drops which forms the pattern’s peak component.
3. A double bottom pattern means a potential reversal from bearish price action to bullish price action is imminent and market participants are anticipating bull trending markets.
4. The Double Bottom Pattern is formed both in short-term and long-term timeframes, from 5-minute to monthly ones.
5. Our chart pattern scanner can also be used for other patterns such as head and shoulders, triangles, and cup and handles.
6. The appearance of a double bottom pattern on trading charts implies that seller activity or volume in the market has significantly reduced when sellers are not willing to allow the price to fall further.

The ability of a double bottom pattern to effectively predict a bullish reversal makes it a common forex trading tool. The formation of a double bottom pattern on the charts reflects the end of a downtrend and the start of an uptrend. The two bottoms of the double bottom pattern indicate a support level from which forex traders predict an uptrend and confirm it after a breakout. A double top signals that the bullish trend may be ending, whereas a double bottom signals that the bearish trend may be ending. Double tops and bottoms can be useful for a trader’s technical analysis strategy​​, although chart patterns do not always accurately forecast trend reversals.

The lows will typically occur at slightly different levels, which is the same for a double top. Here is an example of a double bottom on a Bitcoin (USD) trading chart​​. After the breakout, retesting the pattern’s upper border, which was a resistance that turned to support, is highly possible. Pip distance of the trend prior to the pattern formation should be noticeably longer than the pattern formation itself.

Uptrends make higher swing highs, and that is what a completed double bottom pattern creates. A double bottom candlestick pattern is a chart pattern that occurs when the price makes a low, pulls back to the upside forming a swing high, then moves back down to near the prior low. For the pattern to complete and signal a possible price reversal to the upside, the price must move above the high swing that occurred between the two lows.

The Double Bottom Pattern is one of the strongest reversal patterns out there. The double bottom Pattern is highly effective in predicting changes in the trend direction of the stock market. Its greatest strength is that it offers clearly defined levels to play against. It’s important to note that no trading pattern or strategy guarantees 100% success in the Market. The key features of a double bottom pattern are two bottoms at the same price level separated by a temporary price and a breakout position above the temporary peak.

The Double Top Pattern, a significant chart formation in technical how to trade double bottom pattern forex analysis, represents a bearish reversal signal, often resembling the shape of an ‘M’. This pattern emerges after an uptrend, signifying potential downward momentum. Similarly, its counterpart, the Double Bottom Pattern, indicates a bullish reversal following a downtrend, forming a ‘W’ shape.