Currency Pairs: Any
Timeframes: 15mins and above.
Forex Indicators: none required
The double bottom chart pattern is considered as a bullish reversal chart pattern. A double bottom chart pattern is made up of two bottoms or lows that are roughly equal with a peak in-between.
HOW THE DOUBLE BOTTOM CHART PATTERN FORMS
- There should be an existing downtrend
- Price finds support and this stops the downtrend move and price will rally to a new high forming a resistance point or level called the neckline which is the peak, anyway.
- The next stage is that sellers get in and push down the price but when Price reaches the previous low (bottom), price finds support and rallies back up.
- These two bottoms (or lows) now form 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.
DOUBLE BOTTOM CHART PATTERN TRADING RULES
- The Aggressive Entry or
- The Conservative Entry
The Aggressive Trade Entry Rules:
With this, you do not need to wait for the confirmation of the double bottom chart pattern (price breaks out above the neckline).
This means, you are trying to get in a trade early, 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 essentially bought at the very low price or spot and you’ve be in for good profits!
- Once the second bottom is formed, what you do is watch for a bullish reversal candlestick formation.
- Place a buy stop order just 3-5 pips above the high of the bullish reversal candlestick pattern.
- Place your stop loss 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 from 5-20 pips.
- For your take profit target, you can use the peak as your take profit target level
The Conservative Trade Entry Rules:
This is only when the double bottom chart pattern is confirmed. If you trade this way, this 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.
Anyway, here’s the trading rules:
- Wait for price to break above the peak. Make sure the candlestick that breaks the peak must close above it.
- Then place a buy stop order 3-5 pips above that breakout candlestick’s high.
- Place your stop loss anywhere from 3-10 pips above just below the peak or just a few pips (3-5 pips minimum) under the low of the breakout candlestick.
- For you take profit target, calculate the distance in pips between the peak and the 1st bottom (or the second bottom…whichever you prefer) and use that number to project your take profit target price level.
ADVANTAGES OF THE DOUBLE BOTTOM CHART PATTERN FOREX TRADING STRATEGY
- Based simply on price action so you don’t need other forex indicators to confirm your trade entry.
- the double bottoms pattern is really easy to spot
- high probability success trading can be achieved using bullish reversal candlesticks for trade entry confirmation.
- low risk trade entries can be achieved with this forex trading strategy-very good Risk:Reward ratio
DISADVANTAGES OF THE DOUBLE BOTTOM CHART PATTERN FOREX TRADING STRATEGY
- as usual, not all patterns are 100% accurate-sometimes there won’t be a double bottom chart pattern, price will just break through the support level (so no double bottom)
- how far the distances apart from the first bottom to the 2nd bottom formation is also a factor in how the market responds to the double bottom chart formation pattern-if its too far apart, it won’t be noticed, if its too close together, that is also an issue because it may be deemed insignificant.
- waiting for the confirmation of the double bottoms chart pattern (when price breaks the neckline and goes up) means you’d have also missed out on buying low at the bottom 2 spot, and sometimes, that price move from bottom 2 to the neckline (peak) can be hundreds of pips if the trade setup is happening on a larger timeframe.
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