What Is A Double Bottom Chart Pattern?
In technical analysis, a double bottom pattern, also known as a “double bottom reversal pattern”, is a bullish price reversal chart pattern that forms on the price charts of financial markets when the market forms two prominent swing low support levels or troughs and then the price reverses from a bearish trend to a bullish trend. The pattern is confirmed when the price breaks out above the resistance level, also known as the “neckline”, of the pattern.
The double bottom pattern is shaped like the letter “W” on a price chart.
Double Bottom Pattern Components
In order to identify a double bottom pattern, there are three components required.
The three components of a double bottom pattern are:
- A swing low support level on the left: This is the first swing low level of the double bottom pattern that forms on the left side of the pattern. It is marked “1” on the chart above. It is the first of the two bottoms of the double bottom pattern.
- A swing low support level on the right: This is the second swing low level of the double bottom pattern that forms on the right side of the pattern. The low is at the same price area as the first swing low price. It is marked “2” on the chart.
- A neckline resistance level: The resistance level or the neckline of the pattern is the swing high level before the push into the support level. It is marked “neckline” on the chart above.
Drawing a double bottom pattern requires marking all these three components on the price charts of a market where the pattern forms.
Double Bottom Chart Pattern Examples
Below are visual examples of the double bottom chart pattern.
Example Of A Double Bottom Pattern In The Stock Market
On the daily price chart of Zoom stock, a double bottom pattern formed. Once the price of Zoom breaks above the resistance level, it leads to a bullish trend in the market and large price increases over the next few months.
Example Of A Double Bottom Pattern In The Commodity Market
On the daily price chart of Soybeans futures, a double bottom pattern formed at the of a bearish downtrend.
It leads to a bullish price reversal and a rapid and steep increase in the price of Soybean futures over the next few months.
Example Of A Double Bottom Pattern On A Shorter Timeframe Price Chart
In the 3-minute price chart of EUR/GBP, a double bottom pattern forms at the end of a short-term bearish trend.
It leads to a bullish reversal in the price of the currency pair and a fast move higher once it breaks out above the resistance (neckline) level.
This illustrates that double bottoms can form and work in lower timeframe price charts.
Example Of A Double Bottom Pattern On A Higher Timeframe Price Chart
In the weekly price chart of Apple stock, a double bottom pattern forms at the end of a bearish trend.
The price of Apple stock reverses and breaks out from the pattern and this leads to a multi-year bullish trend in the market.
This illustrates that double bottoms can form and work in higher timeframe price charts.
How To Find Double Bottom Patterns
The methods for finding double bottom patterns in the markets are:
- Use a double bottom pattern scanner: A trader can use a double bottom chart pattern scanner to automatically scan for double bottom patterns.
- Browse charts manually and annotate them: A trader can manually scroll through the price charts of the markets and manually draw the patterns onto the charts where they are forming.
- Follow expert chartists on Twitter: Traders can follow expert level chartists on Twitter and watch them post price charts with double bottoms on their Twitter feeds.
Double Bottom Pattern Benefits
The benefits of double bottom patterns are:
- It can help spot bullish price reversals: A double bottom pattern can help a trader spot bullish price reversals. It can assist them in looking for a long trade to try to capture bullish price moves.
- It can help provide logic to the price action: Understanding that the market is forming a double bottom can help a trader understand that the market is setting up for a potential reversal.
- It can act as profit-taking for short trades: a short trade can use a double bottom pattern as a signal to take profits on a short trade as the market could potentially reverse from bearish to bullish.
- It can be applied to multiple markets and multiple timeframes: A double bottom pattern can form on any timeframe of price chart and in any market. It is not restricted to one or just a few.
Double Bottom Pattern Limitations
The limitations of double bottom patterns are:
- It can fail: Like all patterns, double bottom patterns can and will fail from time to time. Make sure to always know the risk levels before trading this pattern.
- Stop-loss distance can be high: The price difference between the stop-loss level near the swing lows and the entry point at the neckline level can be high meaning a trader will sometimes need to place wide stop-loss orders.
Double Bottom Formation Duration
The length of time a double bottom pattern takes to form will depend on the timeframe of the price chart used to find the patterns.
Example durations for a double bottom pattern to form include:
- 90 minutes minimum for a double bottom to form on a 3-minute price chart.
- 120 hours minimum for a double bottom to form on a 4-hour price chart.
- 30 days minimum for a double bottom to form on a daily price chart.
- 30 weeks minimum for a double bottom to form on a weekly price chart.
Frequently Asked Questions About The Double Bottom Pattern
Below are frequently asked questions about the double bottom chart pattern.
Is A Double Bottom Pattern Bearish?
No. A double bottom pattern is a bullish reversal pattern that indicates that the price of a market may reverse from bearish price action to bullish price action and that the prices may increase and move higher.
What Does A Double Bottom Pattern Tell You?
A double bottom pattern tells traders that the end of a bearish trend is near and that a new bullish trend may just be getting started in the market where it forms.
What Price Chart Timeframes Can A Double Bottom Pattern Form On?
A double bottom chart pattern can form on any timeframe price chart from a short-term tick chart to a higher timeframe weekly and monthly price charts.
What Is The Difference Between A Double Bottom And A Double Top Pattern?
The differences between a double bottom pattern and a double top pattern are:
- It’s shape: A double top pattern is shaped like the letter “M” on a price chart whereas a double bottom pattern is shaped like the letter “W” on a price chart.
- What it indicates: A double top pattern indicates that the price may reverse from bullish to bearish momentum whereas a double bottom pattern indicates that the price may reverse from bearish to bullish momentum.