Double bottom pattern

A double bottom is a bullish reversal pattern. After a downtrend price makes a low, bounces, then returns to the same area and holds. Sellers tried to extend the decline twice and failed at the same level.

It is the mirror image of the double top pattern and is read the same way on stocks, crypto, forex and commodities.

On Charts the trend line and rectangle tools mark the support and the neckline. What to check:

• Prior downtrend – the pattern needs a decline to reverse. Two equal lows in a sideways market are just a range.
• Two lows at about the same level – an exact match is rare. The second low can hold slightly above the first or dip slightly below it.
• A clear high between the lows – the bounce should stand out on the chart, and the lows should be well separated in time.
• Neckline – a horizontal line through the high between the lows. It acts as resistance until it breaks.
• Volume – often lower on the second low and higher on the breakout above the neckline.
• Confirmation – a candle close above the neckline. Until then the pattern is not complete.

The W pattern has four legs. The first leg down is the end of the downtrend. The first leg up is a bounce that sets the neckline. The second leg down tests whether sellers can make a new low. The second leg up is the breakout: buyers take price through the neckline.

The second low matters most. A low that holds on lower volume, or with a higher RSI reading than at the first low, is read as selling pressure fading.

A double bottom gives a long trade, and only after the neckline breaks.

• Entry – on the candle close above the neckline, or on a pullback to the neckline from above. Pullbacks are common, but not every breakout gives one.
• Stop – below the second low. A stop just below the neckline is tighter, but a deeper pullback takes it out more often.
• Target – the measured target: the height of the pattern, from the lows up to the neckline, added to the neckline.
• Example – lows at 100, neckline at 123. The pattern is 23 points tall, so the measured target is 123 + 23 = 146.
• The target is an estimate, not a level price has to reach. The nearest resistance on the way is a common place to take part of the profit.

A second low slightly above the first shows buyers stepping in earlier. Traders read it as the stronger version of the pattern.

A second low that dips below the first and closes back above it takes out the stops under the first low before turning. In smart money terms this is a liquidity sweep. It is still a double bottom as long as price does not close and stay below the first low.

• Buying the second low before the breakout – in a downtrend a level that held once often breaks on the next test.
• Calling any two lows a W pattern – without a prior decline and a clear bounce between the lows there is nothing to reverse.
• Lows too close together – two lows a few candles apart are one bottom, not two.
• Ignoring a failed pattern – a close below both lows cancels the double bottom, and the downtrend continues.
• Chasing a breakout far above the neckline – the stop below the second low is then too far away for the size of the target.