Welcome to the new Tradimo learning platform. If you come from the previous version of Tradimo, you need to register again. Apologies for the inconvenience

Welcome to Tradimo! Here is our special offer for new users: Buy your first course now and get 10% off! 

0:00/3:33

Double bottom chart pattern

The double bottom chart pattern is an inverse pattern of the double top – it is a reversal pattern that occurs after a downtrend. This means that when you see the pattern you will then look for buying opportunities. This lesson will show you how to identify the pattern and introduces two different ways to trade the double bottom.

Identifying the double bottom pattern

There are two lows, where the price attempted to break through a support level twice before reversing to the upside. There is also a neckline, which is considered the top part of the pattern.

The chart below demonstrates what a double bottom pattern looks like:

  1. First low
  2. Second low
  3. Neckline

A double bottom is formed when sellers attempt to breach a support level twice.

Buyers enter the market at a support level and prevent the sellers from pushing the price down lower, at 1. After a second failed attempt at making new lows, the sellers retreat and the buyers gain the momentum to rally the price back up, shown at 2.

Trading the double bottom: method one

We will now look at two ways to trade the double bottom.

One of the ways to trade a double bottom pattern is to enter a long position once the price breaks through the neckline of the pattern.

The chart below demonstrates what this looks like. Notice the neckline (grey) being broken as the price moves up:

  1. First low
  2. Second low
  3. Neckline
  1. Entry when the price breaks through the neckline
  2. Stop loss goes below the pattern
  3. Profit target goes the same distance as the height of the pattern, up from the neckline

As you can see from the chart above, the entry occurs as the price breaks the neckline.

The stop loss is placed just below the lows of the double bottom pattern and the profit target is measured by taking the height of the actual pattern and extending that distance up from the neckline.

Trading the double bottom: method two

The second way to trade the double bottom pattern is to wait for the price to trade above the neckline (broken resistance) and then look to place a buy order on the retest of the neckline as support (broken resistance now becomes support). The stop loss would go below the new support area and the profit target would remain the same as in the first example.

The chart below demonstrates the second way a trader can trade the double bottom pattern showing the entry (blue), stop loss (red) and take profit levels (green):

  1. First low
  2. Second low
  3. Neckline
  4. Height of the pattern (red shaded area)
  5. Same distance as the height of the pattern (red shaded area)
  1. Long entry after the price retests the neckline as support (in the red shaded area)
  2. Stop loss goes below the new support level
  3. Profit target goes the same distance as the height of the pattern, up from the neckline

Summary

In this lesson you have learned that:

  • the double bottom chart pattern indicates a possible move up in price and potential buying opportunities.
  • you can trade the pattern on the breakout of the neckline, placing your stop loss below the pattern and the profit target the same height as the pattern, up from the neckline.
  • you can also trade the double bottom after the price as broken through the neckline and retested it as support. The stop loss goes below the support level and the profit target goes the same distance as the height of the pattern, up from the neckline.