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Our chart pattern scanner can also be used for other patterns such as head and shoulders, triangles, and cup and handles. To test our chart pattern scanner on the platform, you will need to create an account. By opening a demo account, this allows you to trade risk-free in the markets using our pattern recognition software.

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In addition, its interactive charts allow traders to analyze various aspects of the pattern without manually drawing each line onto the chart. If the distance from the trough to the neckline is 8%, the logical price target should be 8% above the neckline. It is calculated by adding the pattern’s height to the breakout point.

In addition, the pattern can be formed both in short-term and long-term timeframes, from 5-minute to monthly ones. Note that longer timeframes provide more accurate signals, including reversal ones. Double tops and double bottoms are chart patterns used to signify a reversal from the prevailing trend. Here, we explain double tops and double bottoms including what they tell traders and how to trade using them.

What is a double bottom pattern?

The second top (bottom) indicates that climax activity has weakened and there are conditions for a market reversal. The picture below shows a 30-minute Australian dollar futures chart. BidAsk, BigTrades (it is displayed with red and green squares) and Stacked Imbalance indicators have been added to the chart. The chart has been switched to the cluster mode, Volume and cumulative delta indicators have been added to the indicator section. Try to use non-standard chart types that are available on the platform.

The double bottom pattern always follows a major or minor down trend in a particular security, and signals a reversal and the beginning of a potential uptrend. The fundamentals should reflect the characteristics of an upcoming reversal in market conditions. Also, volume should be closely monitored during the formation of the pattern. A spike in volume typically occurs during the two upward price movements in the pattern.

Related Chart Patterns to the Double Bottom Pattern

Sometimes, the market might not re-test the level you’re looking at. Because you don’t have a logical place to set your stop loss, and you’ll likely get stopped out on the pullback or reversal. When you trade the Double Bottom, you must pay attention to the time and space between the lows — the larger the “gap”, the better.

This is true regardless of the price action pattern that has formed. As you can see from the illustration above, the double bottom pattern has formed after an extended move down. Shortly after forming the first bottom, the market retested new resistance at the neckline and subsequently found support again at the same key support level (second bottom). We will now use the same example to show you how to trade the double bottom pattern. This example also offers great insight into how the failed breakouts work. As you can see in the chart below, as soon as the price action created a second bottom, it surged higher, breaking above the levels where two previous highs were recorded.

Marking the beginning of a potential future uptrend, a double bottom pattern is a bearish-to–bullish price reversal that signals a continuous downtrend has bottomed out. It shows that the price is about to rise again, which describes a change in a previous trend and a momentum reversal from the most recent leading price. A double bottom pattern is the opposite of a double top pattern, which suggests a bullish-to-bearish trend reversal.

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False breakouts often occur at widely anticipated breakout points like the neckline of a double or triple bottom. Vast flocks of inexperienced traders will attempt to go long at these points. So, big, experienced players may attempt to use these breakout points to fool you into selling too early near the bottom or buying too late near the top. Perhaps the most important aspect of a Double Top is to avoid jumping the gun. Wait for support to be broken in a convincing manner, and usually with an expansion of volume. A price or time filter can be applied to differentiate between valid and false support breaks.

• FinViz has a great feature for scanning for double bottom patterns.
• The second bottom, though it reaches a similar price range, may be less sharp as most of the panic selling surrounding the security has already happened by this point.
• It then formed a double-bottom at $3.35, where it then bounced back.

Given the pattern above, at what point in the market would this pattern have been confirmed as a double bottom breakout? Join thousands of traders who choose a mobile-first broker for trading the markets. The entry point is above the resistance level or the neckline when the price bounces up.

How to identify a double bottom pattern on a stock chart?

The first method to trade a double bottom pattern is to enter a trade when the price of an asset breaks the neckline/resistance of the chart formation. The second drop is formed as the market discounts the previous downtrend, and the buying pressure increases. As the second bottom forms, there are signs of a price reversal and uptrend.

There is a bright red cluster that stands out from all the rest (it is indicated with a red arrow). This is a clear sign of a seller appearing just above the 27,300 level. It is believed that after the breakout of the neck line, the price will continue to move until it reaches the initial height of the pattern.

What are double tops?

Although there can be variations, the classic Double Bottom pattern usually marks an intermediate or long-term change in trend. Many potential Double Bottom patterns can form during a downtrend, but until key resistance is broken, a reversal cannot be confirmed. To help clarify, we will look at the key points in the formation and then walk through an example. The double bottom indicates a bullish reversal, as there are two pieces of bullish evidence. In the above chart, the price meets support and the price is unable to make a lower low on the second attempt. Then, the price rallies above the prior swing high, creating a new swing high.

You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness how to trade double bottom pattern of the above information. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. Any research provided should be considered as promotional and was prepared in accordance with CFTC 1.71 and designed to promote the independence of investment research. As an example of a double top trade, let’s look at the price graph below.

One mistake that’s easy to make when using double bottom patterns is misreading what the stock charts are telling you. A double bottom pattern is an exceedingly good signal for traders. It provides an easy and accurate way to identify potential buying opportunities creating high-probability trades. Tom Bulkowski’s research confirms an accuracy of 88 percent for double bottom patterns with an average profit potential of 50%. After identifying the two bottoms, look for a confirmation of a trend reversal by watching for a breakout either above the upper resistance line or below the lower support line. If the security price breaks out above the resistance line, it could signal that the security has completed its reversal.