A Bottom is a short-term reversal pattern. A decrease in often precedes this formation.
In Bull Markets, these patterns breakout to the upside 85% of the time.
A Bottom is preceded by a downwards price trend. Price action will compress between two horizontal .
Price will bounce between the two horizontal levels like a ping pong, generally while rises. The average time for a Bottom to play out is 60-80 days.
We can see that in this example. Notice the spike in mid-May that lead very quickly to the breakout.
We can measure our Target Price from the breakout one of two ways.
Method One: Measure the difference between the Highest High and the Lowest Low in the pattern. Add this difference to the top horizontal .
Method Two: Measure the length of the pattern. Flip it on it's side to calculate the next significant target. While this may sound a bit far-fetched,
Bulkowski himself even states in 'Encyclopedia of Chart Patterns' that that method serves as a convenient rule of thumb.
Rules for Trading a Bottom:
1. Wait for the breakout! Place your trade after price closes outside of the and trade in the direction of the breakout.
2. Often a Bottom presents the perfect chart pattern to range trade. Look to place shorts at the top horizontal resistance and to go long near horizontal support.
3. Watch for to increase after 30-45 days of price consolidating in this formation. Rising is a good sign of an impending breakout.
Advice for this Trade Setup
1. Play the range opportunity. Look to long near horizontal support and sell your position as price moves up towards horizontal resistance.
2. Be careful if trading the Breakout itself. As you can see from the previous formation's breakout, price moved on high and momentum in the span of a Daily Candle.
3. High candles near support can often indicate potential entry zones.
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