“Double Bottom” patterns form when prices fail to make new lows at a significant bottom area. Most of the time, the lows on the two “bottom bars” form within 2 to 5 percent of the applicable price range. “Double bottom” patterns are easily detected after the apparent formation, and can be traded with good confirmation signals. Volume may provide a good confirmation signal as the volume in the first swing would be heavier than the volume in the second swing. Volume may also be heavier on the breakout. If the breakout volume is weaker, it may be signaling a third bottom.

Trade: A “Double bottom” can only be traded after confirmation of the pattern breakout. Confirmation of the pattern occurs when prices close above neckline. Enter a “long” trade above the high of the breakout bar from the neckline.

Target: “Double bottom” patterns also have a good riskheward ratio. The first target would be 100% of the swing range of the pattern. The second target would be 127% to 162% of the depth of the “double bottom” pattern.

Stop: “Double bottom” patterns do fail. This pattern failure occurs if the price closes below in the middle of the pattern for multiple bars. Trading below the bottom of the pattern could be a signal of triple bottom. Place a “stop” order below the middle of the pattern to protect the trade.

Trading Double Bottom Pattern

Trading Double Bottom Pattern

The example above illustrates a “Double bottom” pattern formation from the Dow Emini futures (YM) chart. YM made a double bottom from June, 2006 to August, 2006 at the 10,800 level. The “Double bottom” pattern is relatively easy to trade. A “long” trade was triggered at the breakout of the swing high (at level ” A 11,500).

  1. Enter a “long” trade above the high of the breakout bar at level “A” at 11,500.
  2. Place a “stop” order at the middle of the channel (trading below may be “triple bottom”).
  3. Target the depth of the “double bottom” pattern (600 points) above the trade entry.

Trading Double Bottom Pattern

Trading the Double Bottom Pattern

The example above illustrates a “Double bottom” pattern formation from the Google (GOOG) chart. GOOG made a “Double bottom” from June 2006 to August 2006 at $370 level. The “Double bottom” patterns are relatively easy to trade. A “long” trade is triggered at the breakout of the “swing high” (at $430). The depth of the “Double bottom” pattern is $60.

  1. Enter a “long” trade above the high of the breakout bar at $430 level.
  2. Place a “stop” order at the middle of the channel (trading below may be “triple bottom”).
  3. Target the depth of the “Double bottom” pattern above the trade entry.