Double Bottom is one of the most common reversal patterns found after a downtrend. The Double Bottom pattern is very similar in nature to the Double Top pattern. These figures are identical, with the only difference being that they seem to be a reflection of each other. As you have probably already guessed, the Double Bottom figure consists of two approximately equal bottoms, between which there is a small ascent. Sometimes the Double Bottom is called the letter of the Latin alphabet "W" because of the obvious similarity.
As a rule, a classic Double Bottom foreshadows at least a small change in the direction of price movement for a financial instrument. It is important to note that many potential Double Bottoms can be seen in a downtrend, but for a certain combination of prices in time to be called a Double Bottom pattern, confirmation and completion of the pattern is required. The main price movement that confirms a Double Bottom is the crossing of the neckline (resistance level) from bottom to top. Also, my team and I recommend to wait for the retest of the broken level - it gives us additional confirmation that the price will go in our direction (i.e. continue to grow).
For a complete view of the Double Bottom, we will go over all the necessary chart components to form this pattern:
1. A downtrend is necessary before the Double Bottom, because the Double Bottom is a reversal pattern (a downtrend is needed to have something to reverse).
2. The first bottom marks the local minimum and the lowest point on the current trend. The first bottom does not jeopardise the trend, as there may be many more outcomes at this stage. (The first bottom marks the line of lower support.)
3. A climb should occur after the first bottom; the climb is usually 10-20% of the first bottom price. Ascent highs are usually rounded up and equalled to form a resistance line.
4. A second bottom is formed after the ascent and is usually accompanied by low trading volume. As a rule, the second bottom confirms the support line from the first bottom, but small deviations are possible.
5. Price growth after the second bottom should be accompanied by increased trading volume. At this stage, the pattern is almost confirmed; only resistance remains to be tested.
6. Crossing the resistance line from bottom to top - full completion and confirmation of the Double Bottom pattern. As a rule, the crossing is accompanied by increased trading volume and rapid price growth.
7. Resistance turns into support after confirmation of the Double Bottom.
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