What it looks like
A fall to a low, a bounce to a swing high, then a second fall that stops at about the same price as the first low, making a W shape. The high of the bounce is the neckline. The pattern is only complete when a candle closes above the neckline. The height is the distance from the lows up to the neckline.
What it means
Sellers pushed price down to the same area twice and buyers defended it both times. Once price closes above the bounce high, the defence has worked and the run of lower lows is broken. The pattern turns a hesitant pause at a low into a confirmed change of direction.
How to trade it
- 1
Mark both lows and the bounce high between them (the neckline).
- 2
Confirmation: a candle closes above the neckline.
- 3
Entry: buy the break, or wait for price to come back and hold the neckline from above for a better price.
- 4
Stop: below the two lows. Example on gold: lows at 4,000 and 4,002, neckline at 4,030. Buy a retest at 4,031 with the stop at 3,996, a 35 point risk.
- 5
Target: the height of the pattern (30 points) added to the neckline, about 4,060.
A close back below the neckline, the level that broke.
Where it works best
After a clear fall into a support level on the 1 hour, 4 hour or daily chart, with the two lows a reasonable number of candles apart.
WickSpeak finds double bottoms automatically and names them on the candles that made them. The note explains what the pattern is, how to trade it and that a close back below the neckline proves it wrong. In Playbook you can use it as a condition in a play, alone or alongside other patterns and indicators (any of the 146 patterns can be a condition), and backtest it on past candles with your own costs.
Common mistakes
- Buying at the second low before the neckline has broken.
- Calling any two lows a double bottom, even in the middle of a range.
- Forgetting that the second low is a stop pool (equal lows) that is often swept before the pattern works.
Related patterns
Questions traders ask
How do you confirm a double bottom?
With a candle closing above the high of the bounce between the two lows, called the neckline. Before that, it is only two lows.
What is the target of a double bottom?
The usual target is the height of the pattern, from the lows to the neckline, added to the neckline. It is a guide, and the next resistance may come first.
Is a double bottom bullish?
Yes, once it is confirmed. It shows buyers defended the same price twice and then took out the high between the lows.
What is the difference between a double bottom and a W pattern?
They are the same thing. W pattern is a nickname that comes from the shape the two lows and the bounce make on the chart.