CHART PATTERNS

Page 5

The Double bottom:

A double bottom is simply the opposite of a double top. This pattern most often occurs during a downtrend and is a signal of a reversal of the downtrend into an uptrend. This pattern is easily recognizable after the fact by its resemblance to the letter 'W'. The initial downward move will find a support at the first bottom and then the price action will rally off the support to a temporary new high (the middle of the 'W'). Another selloff will take place that will reach the same support level of the first bottom, and consequently cause another rally upwards. Lastly, the trend is confirmed when the price breaks through the upper resistance to complete the pattern and reversal as displayed below.

chart-patterns-forex-07.jpg

These are the most basic pattern structures of double tops and bottoms that can be found on the charts. As you can see, the key levels of support and resistance are absolutely vital when it comes down to pattern structures and clean chart price action setups. We will now go into some more advanced price action setups surrounding double tops and bottoms.

This second rejection confirms the double bottom formation; ideal for a buying opportunity or even an exit if you have been holding a short trade over a considerable period of time.