What is a double bottom pattern? Buy coins with a double bottom pattern
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The Double Bottom is also known as a price reversal pattern. This price pattern is usually quite recognizable but highly profitable for the trader. Therefore, it is trendy in technical analysis. This article will learn the basics of double bottoms, when traders use them, and how to apply them in crypto trading.
What is a double bottom pattern?
A double bottom is formed after two consecutive bottoms are equal and a peak in between them. This is a perfect pattern used by professional traders in technical analysis.
This pattern usually appears after a downtrend is about to end to reverse to an uptrend. When there is a previous downtrend, a double bottom is formed, signaling an imminent uptrend. If the second bottom is higher than the first, then a stronger upside is likely.
How to recognize a double bottom pattern?
To recognize a double bottom on a chart, you need to identify a few characteristics:
- The two bottoms must be level or slightly higher/lower than each other. When connecting 2 bottoms, there will be a horizontal or slightly sloping support line.
- The peak between the two bottoms is the small peak. The horizontal line passing through this peak forms a resistance line called the neckline.
- After the price has completed 2 bottoms and rises above the support line, forming a crossover point, that crossover point is called Breakout.
- After making a breakout, the price usually drops slightly to retest the resistance at the support line. If the price tests the resistance and rises again, the reversal pattern is more strongly confirmed.
How to trade with double bottom chart pattern in trade coin?
Use the double bottom chart to identify a signal to buy coins
When using chart patterns to trade coins, the larger the timeframe, the higher the accuracy. To identify a buy signal, you need to determine enough of the following factors to confirm the pattern:
- Before identifying a double bottom chart pattern, you need to confirm a strong previous downtrend.
- In particular, this chart pattern must have 2 equal or nearly equal bottoms. Especially if there is a difference, the next bottom is higher than the previous one, which will have higher confirmation.
- The pattern is only really completed when the price has crossed the breakout point, and if there is a retest, the stronger the reversal will be.
- If the price fails to break through the breakout point and breaks out of the pattern, the price increase is not confirmed.
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After the chart has met the criteria, you place an order to buy coins as follows:
- Buy a small coin order after the price completes the breakout.
- The 2nd order you buy after the price completes the retest. This is usually the more appreciated and secure point of purchase.
How to set stop loss, take profit?
- Place stop loss below the nearest bottom
- Take profit by the distance from the breakout point to the bottom.
Above is how to trade coins using the double bottom pattern in technical analysis. This model is applied quite effectively in the cryptocurrency market, especially with the 1D and 4H timeframes.
However, any trading method has a probability and requires a lot of practice in practice. In particular, you should incorporate other confirmation factors when making trading decisions.