Today’s Forex Guide

Double Bottom Chart Pattern- Bullish Reversal Patterns


Jan.20.2017

Double Bottom chart pattern is a bullish reversal formation. When confirmed, indicate that the trend of the market price will reverse from downtrend, into uptrend.

 

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A Double Bottom chart pattern is the mirror image of the Double Top pattern. It looks like the letter “W” or the tushies of twin babies hugging. It happens when the pair is in a strong downtrend, followed by two consecutive valleys that are approximately equal to each other,with a peak in between.

Double Bottom Chart Pattern Resembles Twin Babies Tushies Double Bottom Chart Pattern Resembles Twin Babies Tushies

 

 

Identifying Double Bottom Chart Pattern

The “bottoms” are valleys that are formed when the price hits a certain level that can’t be broken.

Double Bottom Chart Pattern Formation on CandleStick Charts Double Bottom Chart Pattern Formation on CandleStick Charts

 

 

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The chart shows the Dollar-Swissy pair on a 4-hour candlestick chart. The story behind this chart is that the pair had been falling rapidly until it hit a support level, the level of the low of the first bottom. Since the pair was very stubborn, it decided to go back, gain energy, and try that level one more time (the second bottom). It’s a shame, but it couldn’t make it. So the U.S. dollar and the Swiss franc got upset and said to each other: “Now that we are not able to continue down even with such a powerful downtrend, let’s just turn around and switch directions and show those traders who they are dealing with!”

And that was the beginning of a new uptrend.

Double Bottom Chart Pattern Confirmation - Downtrend Reversal Double Bottom Chart Pattern Confirmation - Downtrend Reversal

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Tada! Just as with the double top pattern, we should pay close attention to whether or not the pattern has been confirmed by a subsequent break of resistance (the neckline). After seeing that, along with other points of the IDDA approach to strategy development, we could place a bullish entry order (buy order) above the neckline and enjoy the ride up. Just to be safe, we usually set our limit order a little below the same distance as that between the bottom and the neckline.

 

 

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