Double Bottom


Double Bottom

Double bottom is one of the most common formations which indicate the direction of trend movement. It usually appears in the chart after the downward trend. The pattern consists of two parallel roots, among which we have a line of strength. Often called the dual layer of "w - accumulation" because it is very similar to the Latin letter W.


Pic.1 - Double Root


As a rule, the classic double bottom formation occurs when the counter-trend movement begins on the market, even if it is too small. In the development of the downward trend, we can see a lot of figures on the graph which are somewhat similar to the double bottom formation, but in order to turn it into the above pattern, it is necessary that the line from the second footstep to cross the resistance line from the bottom and the figure will be shown in the w.


Pic.2 - Double bottom formation is confirmed

Now let’s consider all the signs that should characterize the formation.

1.      It is necessary to have a strong downward trend. This pattern appears in the chart only on the background of a downward trend.

2.      The first root indicates the local bottom and the lowest point of the downward movement. The first root formation is not in the question of a possible suspension of its downward movement.
3.      After the formation of the first root, the ascending correctional movement must be at least 10% of the descending movement.

4.      The second step is formed after the upward correctional movement. This wave is characterized by a decrease in volumes. The second root usually stops at the first roots level or may be stopped at the top or bottom of the first root.

5.      The upward movement, starting from the second root, is characterized by a sharp increase in volume.
6.      As soon as the price crosses the resistance level from bottom to top, a double bottom formation is deemed confirmed. In the course of crossing the line, we have an increased volume on the candles and a quick movement of the price.

7.      After the formation of a double bottom, the resistance line is transformed into support. After the line of the line, the price continues to move upwards.

Now let's see what is going on at the time of the formation of a double bottom, the volume in terms of analysis.

We know that in order to stop the movement of the downward trend of the major players and then change the direction where it needs to:

1.      Large liquidity is sold as stop orders because the buy limit orders can only accumulate a position in an area where there are a large number of the sellers, who are ready to open more and more short positions.

2.      Many retail traders with short positions additionally contribute to a large buy order warranty, which is also necessary to take the price up.


Pic.3 - Accumulation of position by the large players  

After a large player gets the position at the end of the first step, it allows the price to go up to a certain point. After that, the price of the traders is still down due to additional pressure, as the existing trend is downward, the larger player here also adds additional liquidity, and the price goes upwards.

As soon as the price goes to the zones where retail traders have opened short-term stop-loss warrants, the price at the buy stop warrants creates a great impetus. All this is seen in the third picture.
The position can be opened on the purchase of double-line formation or VAH, or POC-level repetition.





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