What is double bottom chart pattern?
A double bottom chart pattern is a chart pattern used in technical stock analysis that describes a fall in price, followed by a rebound. It’s a ‘Bullish’ pattern typically found on bar charts, line charts & candlestick charts.
As the name implies, the pattern is made up of two bottom point that are almost equal or equal to each other with a moderate peak between them. It closely resembles the letter “W”
Double bottom patterns can appear in charts that are intraday, daily, weekly, monthly, yearly, and longer-term.
How does it work?
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 Bottom 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 Bottom 2.
How to Trade with Double bottom pattern?
- Entry when the price breaks through the neckline
- Stop loss goes below the pattern
- Profit target goes the same distance as the height of the pattern, up from the neckline.
Why is double bottom chart pattern significant?
If accurately identified, the double bottom can signal a fortunate entry point for investors. To chartists, the double bottom formation indicates that the stock has reached a crucial support level and is encountering difficulty moving lower. That implies the stock has formed a low and is now positioned for an upward move.