Forex Double Bottoms

Forex Double Bottom:

Forex double bottom is a bullish pattern. It indicates a reversal after a downward trend. It is very easy to identify.

1) First there will be sharp downtrend.
2) Now the price rises agin creating the first low point
3) Now the price falls again to the first low point creating a first high point.
4) Now the price rises again creating the second low point and once the price crosses the first high point it is expected to be a long rise.
5) Double bottoms should look like a “W” when complete.

Double bottoms occur after a strong downward trend. To say a forex pattern as a double bottom pattern it must have two flat bottoms and one common high price. Double bottoms are similar to rectangles except double bottoms occur at a relatively new lows.

Check the following picture. In the following picture you can see two flat lows and a common high point and it formed a double bottoms.

Forex double bottoms

Trade Entry:

Once you feel that a double bottoms pattern is forming on any forex price chart, draw a line connecting the the two flat lows. Draw a parallel line to this at the top point. This line we can say it as resistance line. Now once the price crosses the resistance line with a strong candlestick body enter a long trade. A strong candlestick body means a candlestick which has a large body compared to the tail of the candlestick. Check the following picture. In the following picture the resistance line was broken by a strong candlestick body so it is a good opportunity to enter a long trade.

Fforex double bottoms pattern broken by a strong candlestick body

If the resistance line is broken by the tail of the candlestick and not by the body of the cnadlestick do not enter the trade. Check the following picture. In the following picture the resistance line is broken by the tail of the candlestick and not by the body of the candlestick. So do not enter long trade here.

Forex double bottoms pattern broken by candlestick tail

Take profit and stop loss:

Measure the difference between the top and bottom of the double bottom. Break out should be same as the difference. Enter when the break out occurs. That means when the resistance line is broken by a strong candlestick, wait until the candlestick is complete and then enter trading. Set stop loss below the high price of the double bottom. Set profit target (limit) for less than the difference between top and botom.

For example check the folloowing picture. In the following picture the differene between the top and bottom of the double bottom is 100 pips. Once the break out occurs the bullish candlestik went up around 10 pips. So the remaining profit target is 90 pips. But since we are using profit target for less than the difference between the top and bottom set the target for around 85 pips which is 5 pips below the actual target. Check the following picture.

Take profit and stop loss