If you are a pro Forex trader, you would certainly know a lot of information on the double bottom chart pattern. In this case, Double Bottom is a high potential chart pattern which is significantly taught in Forex training. Moreover this is one of the best and successful patterns that are being followed by many successful Forex traders. This chart pattern looks very similar like the alphabet ‘W’. Expert Forex traders most usually expect the price to be in down trend making a BOTTOM. It will slightly rally up while it is sold down with the previous bottom. We can say that this figure is the opposite of the Double Top pattern.
Forex traders generally look around for a fair increase when the market hit the resistance. For giving you a better idea in this regards, here is an example for reference: Just consider when the market drops down from $10 to the least of $2 during the 1st bottom, here the $2 buyers explore the market and drive-up the price at least for $5, where the sellers disdain the $5 level and trade the market again to $2. At this point, the price of the 2nd bottom remaining with $2, the buyers find it easier to get at $2 and further escalate the market again to $5. During this point after minor conviction, they will be able to push the market to $5 again.
Generally, the double bottom pattern appears while the price falls down and further bounces up and then falls down for the 2nd time in order to equalize the 1st drop. This is why experts compare this chart with the alphabet W. In most of the cases, the 2nd bounce in the price will usually be lesser compared to the first one. The 2nd chance of buying will get its peak which will be lesser than the 1st one. If the 2nd peak reaches, buying gets its end and now selling starts. This entails the 2nd leg of M pattern.
General Features of the Doble Bottom Pattern
The following image shows this price formation (the ideal version) with its different parts:
- The double bottom pattern appears when the market is bearish.
- Once finished, this formation involves a corrective phase upward, ie a change in the trend from bearish to bullish.
- It is a chart pattern that is commonly seen in the market indicating turnaround phases.
- Like the double top pattern it is quite reliable, meaning that the trader can use this formation as an indication for a possible change in trend.
- However, the double bottom should be used in conjuntion with other market analysis tools to ensure the reliability of the signal.
Example of Double Bottom Pattern
It is important to mention that there is no exact rule to operate with this pattern and it may not always work (no price pattern works 100% of the time), although it is true that it helps to interpret the price action in the decision making process. There is a risk that the market will turn around and start falling again, especially if the downtrend is very strong, and therefore, it is always advisable to use a protection stop loss when trading with the double bottom pattern (or any other chart pattern), or to know at what point the position must be closed in case the interpretation of the pattern is incorrect.