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Learn Forex Trading > Day 8 Class  ( Important Chart Patterns ) > Double Bottom
Double Bottom
What Does Double Bottom Mean?

A charting pattern used in technical analysis. It describes the drop of a stock (or index), a rebound, another drop to the same (or similar) level as the original drop, and finally another rebound.

The double bottom looks like the letter "W". The twice touched low is considered a support level.

Most technical analysts believe that the advance off of the first bottom should be 10-20%. The second bottom should form within 3-4% of the previous low, and volume on the ensuing advance should increase.

Double Bottom formations are reversal patterns and often seen to be among the most common (together with double top formations) patterns for currency trading. Double Bottoms are identified by two consecutive lows of similar (or almost) height with a moderate pull back up in between (neckline peak).

The double bottom can be a major reversal pattern (if found on a daily chart or bigger timeframe) that can be formed after an extended downtrend. This pattern is confirmed when the currency pair price breaks from (it's second bottom) below through the neckline, the most likely price direction is now UP.

How to trade this pattern?

Go long above the Neck Line (resistance level) when the currency pair price breaks from (it's second bottom) below, the most likely price direction is now UP. Place your stop couple of pips below the second bottom price!

Your target must be at least twice the distance from it's second bottom break to the neckline.

Example: If the second bottom is at 1.2100 and the neckline is at 1.2150, your target level must be at least 100 pips when trading the break out!


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