The Double Bottoms is pattern used very often in FXLORDS’ Managed Forex Accounts, Forex Trading Signals, and it is among subjects discussed in the Training Course.. It is a very popular charting pattern used in technical analysis and it is usually used with other charts patters and technical indicators like the RSI and Moving Average.
It consists of two consecutive bottoms that are roughly equal, with a price increase between those two bottoms. The Double Bottoms appears frequently at the end of a bearish market and it looks like the letter “W”, and it indicates a bullish reversal. This pattern clearly shows that seller are losing control over the price movement and that buyers are dominating.
The Double Bottoms is formed when a downtrend sets a new low to find support, which prevents the price from moving lower. Upon finding the support level, the price will rise to find the middle high, which will form a resistance level. The next stage of the Double Bottoms pattern is another price drop which will take it down to the previous low and then rise up again to the resistance level formed when the price increased the first time. The support level formed by the two tops is considered a support only after the second test, and the resistance level to which the price raised to is called a Neckline. The pattern is complete and confirmed only when the price rise above the Neckline, indicating a reversal in the downtrend. The breakout of the Neckline should happen on increased volume.
The time between the two bottoms is also an important factor whether a Double Bottoms pattern exists or not. If the two bottoms appear at the same level but are very close to each other, then most probably they are part of a consolidation and the original trend will resume.
Volume is another important factor to consider when using this pattern. When the price reaches the first bottom on increased volume then rise to the neckline with low volume, then the attempt to the second bottom should be accompanied with lower volume.