Trading Forex Double Bottom Pattern

Trading Forex Double Bottom Pattern

First, let’s define what we mean by a double bottom.

Four main components make up a double bottom.

• Downtrend
• An initial trough
• Second-bottom
• Neckline

Let me give you an example of what I just said.

Above, we saw an example of a market that was trending downward. It dropped for a while but found resistance at its previous lows (first bottom).

The price retested the prior support level before falling back into resistance (second bottom). The market has already been rejected from this level twice, and any attempts to advance beyond it meet resistance (neckline).

The formation’s rationale escapes me

The pattern’s underlying psychology is straightforward. After a prolonged slump and some exit positions at the support zone, the bears (sellers) are exhausted. Because of this, the first bottom forms.

As the price rises, bears sell their positions, sending the market tumbling back toward its bottom. As sellers give up trying to drive prices below this prior low, more buyers enter the market, and prices begin to climb again, testing the previously established resistance level. Because of this, a second bottom forms, completing the double bottom pattern.

Only a close above the neckline will guarantee a double bottom.

Let’s go right into the meat of the matter and talk about how to trade the double bottom pattern and, of course, generate daily gains.

The Double-Bottom Trading Strategy

Two primary entry methods exist for this pattern.

Method one

Trading this pattern begins with locating the neckline (highlighted in red in the following chart). Then, it’s time to join the market with a buy order whenever the price breaks and closes above the neckline. The stop-loss level was established below the second bottom.

The second approach is the one I often suggest when trading off a double bottom.

Method tow

When the price breaks through the neckline (resistance), we may anticipate a retest of that level as support and place a buy order. As seen below, the stop-loss would be moved below the new support.

The second entrance approach is the one that will serve you best in the long run since it strikes a good balance between risk and return. The two entries’ stop losses will be compared.

The preceding chart shows that the Stop loss was reduced from 185 pips to 43 pips when we switched to the second strategy. Since the goal never changes, you may reduce your exposure and increase your returns. This is the primary justification for my advocacy of this access strategy.

We’ve covered how to spot a double bottom, how to initiate a buy trade, and where to place a stop loss. But, of course, the profit goal comes up next.

A strategy for establishing profit goals when confronted with a double-bottom

Setting a profit goal on a double bottom is traditionally as simple as doing the same thing that worked for the double top.

Method: From the neckline, project the same height as the distance from the double bottom support to the highest possible future point in the market. Then, check out the table down below.

Here, there is a gap of 158 pips between the double-bottom support level and the neckline. Therefore, 158 pips beyond the neckline is a potential goal, as seen in the accompanying chart.