If you are learning price action trading, you definitely must know a double bottom pattern.
Double bottom is a reversal pattern. It is applied to spot early market reversal clues and catch the initiation of a new bullish trend.
Preconditions for a double bottom: 1️⃣ The market must trade in a bearish trend. 2️⃣ After a formation of the last lower high, the price must set equal low. 3️⃣ The price must return back to the last lower high level.
✅Once these conditions are met the pattern is considered to be completed.
The formation of the pattern is considered to be a ⚠️WARNING sign. Even though many traders buy the pattern once it is completed, for me it is not enough. ❗️Remember that the price can easily start to consolidate and form a horizontal channel for example.
The trigger that we will look for is the breakout (candle close above) the last lower high level (based on a wick and its highest candle close) - the neckline. Being broken to the upside, the market sets a new higher high. It signifies a violation of a current bearish trend.
⬆️Attempting to catch an initiation of a bullish trend, we will buy the market with a buy limit order on a retest of a broken neckline.
❌Safest stop will lie below the lows of the pattern.
💰Your reward must be at least 1.5 of your risk.
Following these simple rules, you will be impressed by how accurate this pattern is!
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