Traders if asked what is the most recurring pattern on a chart ? It would be Double tops and Double bottom’s. This pattern gives traders a lot of flexibility and most of the times one can execute this patter with a lot of confidence.
A lot of rough charts showing patterns show rough lines and while a new trader spotting them would be confused in identifying a proper pattern. They can confuse themselves and get into wrong trade.
So keep your identification worries aside and read below, this patterns will never betray you.
Types of Double Bottom's
1. Adam and Eve
2.Eve and Adam
3.Adam and Adam
4.Eve and Eve
The differentiation in this patterns is explained through charts below and a common Identification and Breakout Identification guidelines are explained precisely.
Trend
A Double bottom is a short term bullish reversal pattern. Pattern should be in a short term down trend.
Identifying a Double Bottom
- Left bottom should be lower than right bottom.
- The price should not go below left bottom.
- Narrow patterns work better that broader ones.
- Tall Patterns work better than shorter ones.
- The Highest high of the pattern is its confirmation point and the price should not fall below left bottom before breaking above the confirmation point.
- Volume recedes from left bottom to right bottom.
Breakout Identification
- Volume forms a U-shape.
- 2. Increase in volume at the time of breakout.
- performs better when Left Bottom has more volume than right bottom.
- The price breaks above the Confirmation line.
- Always wait for a close above confirmation line.
- Wait for a confirmation pullback to trade safe.
target
Compute the height from the highest high between
the two bottoms to the lower of the two bottoms then
add the difference to the highest high. The result is the
target price.
stoploss
The stop loss should be at the low of the pattern.
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