This is a short article on trading technical analysis and we are looking at the great opportunities of what the double bottom trading strategy can offer.
What exactly is The Double Bottom? The Double Bottom is a major reversal pattern - a pattern that is, in fact, one of the most common patterns. This can also be one of the most successful trading systems and works very well.
The Double Bottom Explained:
The double bottom reversal forms after a downtrend. As its name would suggest, the pattern is made up of two consecutive troughs with a moderate peak. The double bottom looks like the letter "W", as shown left. The twice-touched low is considered a support level. Which means that the stock will quiet often bounce of this level. Which opens up the chance of a great trading opportunity to open up Of course, at this point in time, knowing how to identify the Double Bottom will be one crucial piece of the puzzle that helps us know when the best time will be to get back into the market. This can help with the entry price, it is important that tight stop losses are used.
The double bottom theory
So what are the rules of the double bottom? How do we find it?There are no hard and fast rules for the classic double bottom, but it is a pattern that usually occurs after a medium- or long-term change in trend. This is a potential double bottom can be seen forming on the way down, but until the key resistance level is broken, a reversal is not certain. Nor is guaranteed to happen.
How to identify the double bottom:
In order for a double bottom there has to be an existing trend in the first place for a reversal to happen. You must first identify the lowest point of the current trend should be in the first trough, not the second. The peak following this first trough should range from around 10-20%. The high of this peak tends to be rounded out somewhat, owing to a delay before going back down. This delay indicates that demand is increasing, but not to the extent of a breakout. The decline off this high, forming the second trough, is accompanied by low volume and nears the support level from the previous low. The scale for the time between troughs can vary, though the scale is usually for one to three months. When the trend bounces off the second tough, it should be clear that volume and buying pressures are speeding up. If the rise is marked, this means a potential change in sentiment. To find a good double bottom only occurs when there is a break in resistance from the highest point between the troughs. Now if you see a broken resistance level could become support; sometimes this new support level can be tested with a first correction. Check the Distance between the resistance breakout to the lows of the troughs can be added on top of the resistance break to estimate your target. In general, the bigger the formation is, the larger the potential advance.
The most important thing is to wait for the resistance breakout. The double bottom reversal is not complete until this happens - price must rise above the high end of the point that formed the second low.
So Now that you have found it, how to trade it:
Once the share price breaks the middle peak the pattern is confirmed - NOT BEFORE! So this is time to enter the trade.
The double bottom is just one trading strategy that the CFD FX REPORT use. For more information visit the website CFD FX REPORT. Or perhaps you are looking for an online forex or CFD Broker, view all this information at the site.
What exactly is The Double Bottom? The Double Bottom is a major reversal pattern - a pattern that is, in fact, one of the most common patterns. This can also be one of the most successful trading systems and works very well.
The Double Bottom Explained:
The double bottom reversal forms after a downtrend. As its name would suggest, the pattern is made up of two consecutive troughs with a moderate peak. The double bottom looks like the letter "W", as shown left. The twice-touched low is considered a support level. Which means that the stock will quiet often bounce of this level. Which opens up the chance of a great trading opportunity to open up Of course, at this point in time, knowing how to identify the Double Bottom will be one crucial piece of the puzzle that helps us know when the best time will be to get back into the market. This can help with the entry price, it is important that tight stop losses are used.
The double bottom theory
So what are the rules of the double bottom? How do we find it?There are no hard and fast rules for the classic double bottom, but it is a pattern that usually occurs after a medium- or long-term change in trend. This is a potential double bottom can be seen forming on the way down, but until the key resistance level is broken, a reversal is not certain. Nor is guaranteed to happen.
How to identify the double bottom:
In order for a double bottom there has to be an existing trend in the first place for a reversal to happen. You must first identify the lowest point of the current trend should be in the first trough, not the second. The peak following this first trough should range from around 10-20%. The high of this peak tends to be rounded out somewhat, owing to a delay before going back down. This delay indicates that demand is increasing, but not to the extent of a breakout. The decline off this high, forming the second trough, is accompanied by low volume and nears the support level from the previous low. The scale for the time between troughs can vary, though the scale is usually for one to three months. When the trend bounces off the second tough, it should be clear that volume and buying pressures are speeding up. If the rise is marked, this means a potential change in sentiment. To find a good double bottom only occurs when there is a break in resistance from the highest point between the troughs. Now if you see a broken resistance level could become support; sometimes this new support level can be tested with a first correction. Check the Distance between the resistance breakout to the lows of the troughs can be added on top of the resistance break to estimate your target. In general, the bigger the formation is, the larger the potential advance.
The most important thing is to wait for the resistance breakout. The double bottom reversal is not complete until this happens - price must rise above the high end of the point that formed the second low.
So Now that you have found it, how to trade it:
Once the share price breaks the middle peak the pattern is confirmed - NOT BEFORE! So this is time to enter the trade.
The double bottom is just one trading strategy that the CFD FX REPORT use. For more information visit the website CFD FX REPORT. Or perhaps you are looking for an online forex or CFD Broker, view all this information at the site.
About the Author:
CFD FX REPORT the forex report and stock market report that traders use. We can help you find the best forex broker.
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