Double Bottom formations are reversal patterns and often seen to be among the most common (together with double top formations) patterns for currency trading. Double Bottoms are identified by two consecutive lows of similar (or almost) height with a moderate pull back up in between (neckline peak).
The double bottom can be a major reversal pattern (if found on a daily chart or bigger timeframe) that can be formed after an extended downtrend. This pattern is confirmed when the currency pair price breaks from (it's second bottom) below through the neckline, the most likely price direction is now UP.
What does a Double Bottom Formation look like?
A double bottom formation is a distinct chart pattern characterized by a rally to a new low (bottom1 or support1) followed by a moderate pull back up(10 -20%) to the neckline (resistance level) and a second rally to test a new low ( bottom1 or support2) again.
The two lows (bottoms or support levels) are at approximately the same price level. What follows is a pull back up to above the neck line (resistance).
How to trade this pattern?
Go long above the Neck Line (resistance level) when the currency pair price breaks from (it's second bottom) below, the most likely price direction is now UP. Place your stop couple of pips below the second bottom price!
Your target must be at least twice the distance from it's second bottom break to the neckline.
Example: If the second bottom is at 1.2100 and the neckline is at 1.2150, your target level must be at least 100 pips when trading the break out!
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