The Double Bottom Chart Pattern Trading Strategy is a price action trading strategy and is considered as bullish reversal chart pattern and the Double Bottom Trading strategy is opposite of the double top chart pattern strategy. A double bottom chart pattern is made up of two bottoms or lows that are roughly equal with a peak in-between.
Timeframes: Works best on 15mins and above
Instrument : You can use this strategy for any Instruments
Identifying the double bottom chart pattern:
- Identify the ongoing downtrend.
- Then the Price finds a support level and this stops the downtrend move and price rallies to a new high forming a resistance level called the neckline which is the peak.
- In the next stage, sellers get in and push down the price but when price reaches the previous low (bottom), price finds the support level it rallies back up.
- These two bottoms are now a strong resistance level.
The double bottom pattern is confirmed when price breaks out above the neckline which is the peak or the resistance level it faced on its prior move up.
Let us understand with a chart below:
Trading Rules :
Trading the double bottom chart pattern is really simple and there are two ways to trade it:
- The Aggressive Entry
- The Conservation Entry
Entry Rules for the Aggressive Trade:
Following this method, you need not want to wait for the confirmation of the double bottom chart pattern. You can get in to the trade easily, based on the fact that a second bottom is forming and that’s when and where you enter a buy trade so that if price goes up and breaks the neckline, you have successfully bought at the very low price and you’ve be in for good profits!
- After the second bottom is formed, watch for a bullish reversal candlestick formation.
- Then place a buy stop order 3-5 pips above the high of the bullish reversal candlestick pattern.
- After that place stop loss just at a few pips below the low of the bullish reversal candlestick formation anywhere from 5-10 pips or you can place it just place it a little bit outside of both the 1st bottom and the 2nd bottom, anywhere between 5-20 pips.
- Set profit target, you can make use of the peak as your take profit target level.
Entry Rules for the Conservative Trade:
Entering conservative trade is only when the double bottom chart pattern is confirmed. If you follow this trade that means you also missed out on the price move from the bottom 2 to the neckline and this can be hundreds of pips move you would have missed.
- First wait for price to break above the peak. Make sure the candlestick that breaks the peak must close above it.
- After that place a buy stop order 3-5 pips above that breakout candlesticks high.
- Then place stop loss anywhere from 3-10 pips above just below the peak or just a few pips (3-5 pips minimum) below the low of the breakout candlestick.
Set take profit by calculating the distance in pips between the peak and the 1st bottom (or the second bottom, whichever you prefer) and use the number to take profit target price level.