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How Can You See the “Double Bottom” and Use It to “Hit the Skies”?
A lot of trading players look forward to the so-called “double bottom”. The name derives from a very particular charting pattern. Why this name and what’s interesting about it?
The “double bottom” looks like the letter W. This chart pattern is generated when the price hits a low (the “first bottom”), then rebounds and drops again (the “second bottom”) to finally soar.
This movement demonstrates that the market is out of balance, with traders fighting to close transactions during the “first bottom”. When the price starts to rebound, some traders open positions, and the price drops. Traders with a good reaction manage to make quite a profit from the W-shaped pattern. Holders, i. e. traders who hold their assets and do not respond to minor market movements.
The “double bottom” may be forecast even before it starts to form. For example, when a long-term slump in price is interrupted by good news and the price starts to slowly grow.
Using the double bottom
It’s important to promptly notice that the “double bottom” is forming: drop – rebound — drop and subsequent price growth. The point is that a part of investors leaves on each curve of this pattern believing that they know how the trend is going to change further. Obviously, they make the same mistake three times before they can see that the price, having gone through the drop – rebound – drop sequence, starts to soar.
In this case, the most patient players are the ones that win. This patience is based on a better knowledge of how to use the tools for price movement analysis and on not jumping to conclusions.