Double Bottom

The Double Bottom is a chart patterns indicator used in Skyrexio Strategy Builder for pattern recognition and reversal/continuation signals.

Introduction

The Double Bottom is a bullish reversal chart pattern that signals potential LONG opportunities or SHORT position exits. This pattern occurs when price reaches a low, rallies, declines back to a similar low, then rallies again, creating a "W" shape that indicates potential trend reversal from bearish to bullish.

How Double Bottom Works

Double Bottom is a bullish reversal chart pattern with specific characteristics:

• Two troughs - Price reaches approximately equal lows separated by a peak • Neckline formation - The high point between troughs creates resistance (neckline) • Volume pattern - Typically increases on second low, expands on breakout • Confirmation requirement - Pattern confirmed when price breaks above neckline • Target calculation - Price target equals pattern height added to neckline

Pattern Psychology: The pattern shows bears making two attempts to push price lower, but failing to break below the previous low. This failure, combined with the subsequent breakout above the neckline, demonstrates a clear shift in market sentiment from bearish to bullish as buyers gain control.

Key Characteristics

Attribute	Details
Category	Chart Patterns
Type	Bullish Reversal Signal
Primary Use	LONG entries, SHORT exits
Timeframe	All timeframes supported (1m to 1M)
Confirmation	Neckline break, volume, support levels

Strategy Applications

🟢 LONG STRATEGY (Primary Use)

Double Bottom is primarily a LONG signal - enter long positions when the pattern completes with neckline breakout.

Base Entry Order (LONG)

Base Order Condition: Double Bottom neckline breakout
First Condition: Double Bottom
Timeframe: 1H

Additional Confirmation:
First Condition: Volume
Timeframe: 1H  
Operator: Greater Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

Additional Entry Orders (LONG)

Additional Entry 1: Pattern confirmation with momentum
First Condition: RSI
Timeframe: 1H
Operator: Greater Than
Second Condition: Value
Value: 45

OR

Additional Entry 2: Breakout acceleration
First Condition: Close Price
Timeframe: 1H
Operator: Greater Than
Second Condition: High Price
Timeframe: 1H

Take Profit Orders (LONG)

Rule 1: Exit condition - Pattern target reached
First Condition: Close Price
Timeframe: 1H
Operator: Greater Than
Second Condition: High Price
Timeframe: 1H

OR

Rule 2: Exit condition - Overbought warning
First Condition: RSI
Timeframe: 1H
Operator: Greater Than
Second Condition: Value
Value: 75

OR

Rule 3: Exit condition - Bearish reversal pattern
First Condition: Double Top
Timeframe: 1H

Stop Loss Orders (LONG)

Rule 1: Stop loss - Pattern invalidated (break below troughs)
First Condition: Close Price
Timeframe: 1H
Operator: Less Than
Second Condition: Low Price
Timeframe: 1H

OR

Rule 2: Stop loss - Volume surge breaks bullish momentum
First Condition: Volume
Timeframe: 1H
Operator: Less Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

OR

Rule 3: Stop loss - Bearish momentum confirmed
First Condition: MACD Line
Timeframe: 1H
Operator: Cross Below
Second Condition: MACD Signal Line
Timeframe: 1H

🔴 SHORT STRATEGY (Secondary Use)

Double Bottom is used in SHORT strategies primarily as an exit signal for existing positions.

Counter-Trend Risk: Using Double Bottom for new SHORT entries is high-risk and should only be considered in extreme overbought conditions with very tight risk management.

Base Entry Order (SHORT) - Not recommended

New SHORT entries not recommended with Double Bottom pattern. Use bearish reversal patterns instead:

• Double Top

• Head and Shoulders

• Rising Wedge

Take Profit Orders (SHORT) - Exit existing positions

Rule 1: Exit condition - Double Bottom signals trend reversal
First Condition: Double Bottom
Timeframe: 1H

OR

Rule 2: Exit condition - Support level reached
First Condition: Close Price
Timeframe: 1H
Operator: Less Than
Second Condition: Low Price
Timeframe: 1H

OR

Rule 3: Exit condition - Momentum exhaustion
First Condition: RSI
Timeframe: 1H
Operator: Less Than
Second Condition: Value
Value: 25

Stop Loss Orders (SHORT) - Protect existing positions

Rule 1: Stop loss - Double Bottom confirms uptrend
First Condition: Double Bottom
Timeframe: 1H

OR

Rule 2: Stop loss - Neckline breakout confirmed
First Condition: Close Price
Timeframe: 1H
Operator: Greater Than
Second Condition: High Price
Timeframe: 1H

OR

Rule 3: Stop loss - Volume confirms breakout
First Condition: Volume
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

Advanced Strategy Combinations

Multi-Timeframe Double Bottom Analysis (LONG)

Setup

Higher Timeframe Confirmation:

• Daily: Double Bottom formation + RSI < 35

• 4H: Trend strengthening (EMA(21) turning up)

• 1H: Neckline breakout + Volume confirmation

Execution

Support Level Bounce (LONG)

Setup Process:

1. Price approaches major support level

2. Double Bottom forms at support

3. Second trough shows volume increase

4. Neckline breakout confirms pattern

Execution:

• Base Order: Double Bottom neckline break

• Additional: RSI momentum confirmation

• Take Profit: Resistance levels, pattern targets

• Stop Loss: Break below support troughs

Risk Management Guidelines

Position Sizing

Strategy Type	Position Size	Conditions
LONG Strategy	Standard	Pattern at support with volume
SHORT Strategy	Avoid new entries	Exit existing positions only
High Volume	Increase confidence	Larger position acceptable
Low Volume	Reduce size	Wait for confirmation

Pattern Reliability Factors

High Reliability

✅ Forms at established support levels ✅ Volume increases on second trough ✅ High volume on neckline breakout ✅ Clear separation between troughs

Low Reliability

Best Practices

For LONG Strategies

1. Wait for neckline break - Pattern isn't confirmed until breakout

2. Volume confirmation - Ensure high volume on neckline breakout

3. Support context - Best results at major support levels

4. Target management - Take profits at measured move targets

For SHORT Strategies

1. Exit signal only - Use primarily to exit existing SHORT positions

2. Quick recognition - Exit immediately upon pattern completion

3. No new entries - Avoid new SHORT positions with this pattern

4. Risk management - Protect capital from major reversals

Common Mistakes to Avoid

• Early entry - Entering before neckline breakout confirmation

• Wrong direction - Going SHORT on a bullish reversal pattern

• Volume ignored - Trading without volume confirmation

• Target greed - Holding beyond reasonable profit targets

Market Conditions Analysis

Market Type	LONG Strategy Effectiveness	SHORT Strategy Effectiveness
Uptrend	🟡 Medium (continuation)	🔴 Low (counter-trend)
Downtrend	🟢 High (major reversal)	🔴 Very Low (against trend)
Ranging	🟢 High (at support)	🟡 Medium (exit signal only)
High Volatility	🟢 High (clear patterns)	🔴 Low (whipsaws)
Low Volume	🔴 Low (wait for confirmation)	🔴 Very Low (avoid)

Related Patterns

Pattern	Relationship	Link
Double Top	Opposite bearish signal	Double Top
Inverse Head and Shoulders	Similar bullish reversal	Inverse Head and Shoulders
Falling Wedge	Bullish continuation	Falling Wedge
Bullish Flag	Bullish continuation	Bullish Flag

Conclusion

Double Bottom is primarily a LONG signal indicating potential major trend reversal from bearish to bullish. While it can be used in SHORT strategies as an exit signal, its primary value lies in identifying LONG opportunities at major support levels.

Key Takeaways

• PRIMARY USE: LONG entries after neckline breakout

• SECONDARY USE: SHORT exits when holding positions

• NEVER: New SHORT entries with this bullish pattern

• ALWAYS: Confirm with Volume and wait for neckline break

Success with Double Bottom requires patience to wait for pattern completion and confirmation. The pattern's reliability increases significantly when it forms at major support levels with proper volume confirmation on the breakout.

Ready to Build Your Own Strategy?

Try our free AI-powered Strategy Builder at app.skyrexio.com and start creating professional trading strategies today. No coding required!