How to Trade Double Bottom Formation | Full Guide
If you are learning price action trading, you definitely must know a double bottom pattern.
Double Bottom is a Reversal Pattern.
It is applied to spot early market reversal clues and catch the initiation of a new bullish trend.
Preconditions for a Double Bottom:
* The market must trade in a bearish trend.
* After a formation of the last lower high, the price must set equal low.
* The price must return back to the last lower high level.
Once these conditions are met the pattern is considered to be completed.
The formation of the pattern is considered to be a warning sign.
Even though many traders buy the pattern once it is completed,
for me it is not enough.
Remember that the price can easily start to consolidate and form a horizontal channel for example.
The trigger that we will look for is the breakout (candle close above) the last lower high level (based on a wick and its highest candle close) - the neckline.
Being broken to the upside, the market sets a new higher high.
It signifies a violation of a current bearish trend.
Attempting to catch an initiation of a bullish trend, we will buy the market with a buy limit order on a retest of a broken neckline.
Safest stop will lie below the lows of the pattern.
Your reward must be at least 1.5 of your risk.
Following these simple rules, you will be impressed by how accurate this pattern is!