Figure Double bottom

The double bottom pattern is a reversal pattern that is most often found in the forex market. pattern occurs in a bear market when a trend begins to run its course.

All traders know about this pattern, since books on graphical analysis talk about it as the very first of the reversal patterns .

Due to the fact that it is familiar to everyone, as a rule, the crowd begins to act like a textbook, so in real trading conditions in most cases it really works itself out. In real life, you encounter it quite often, since, unlike the Head and Shoulders reversal pattern, large players do not have to make as much effort to reverse the trend as happens with the above-mentioned pattern.

A Double Bottom pattern is formed from two gradual lows, or more simply put, from two upward pullbacks that form two bottoms in a bear market.

The figure appears as a result of the fact that the price rests against the support line, and upon the first rebound from it, the price tries to break through it again. If a breakout does not occur, then our pattern is formed, which symbolizes the weakness of the trend and its imminent reversal. Visually it is not difficult to distinguish them, so I recommend that you familiarize yourself with an example in the picture below:

 This figure also has a mirror pattern called “Double Top”. This figure appears in a bull market and has the same construction principle. You can see an example of a mirror figure in the picture below:

How to actually trade using this figure?

The trading rules are very simple: if a double bottom appears in front of you, then you need to draw a support line along the maximum that formed between the first and second bottom. Next, a pending buy stop order is placed at the support level. The stop order is placed behind the second bottom, and the profit is equal to the length of the bottom in points. You can see an example in the picture below:

If a Double Top pattern appears, you need to draw a support line at the minimum that was formed by two tops.

Next, a pending sell stop order is placed at this level. The profit that you will set is equal to the length of the top in points. The stop order is set at the high of the second peak. You can see an example in the picture below:

You can also not use pending orders , but enter directly after breaking the support line.

However, if you use this method, I recommend entering on a closed bar. The disadvantage of this pattern is that the price rests against the support line, so there are times when it simply bounces and the trend does not reverse.

Also, after a rebound, the price can form a triple bottom figure, which is also a reversal figure. In conclusion, I want to say that the double bottom figure is a model of crowd behavior, and the crowd, just like you, sees this figure and can try to prevent it from forming or simply break it. Therefore, I recommend treating graphical analysis as an additional tool to your main trading strategy.