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- Double Bottom Definition
- Double Bottom Chart Pattern Strategy – Buy Rules
Trading cryptocurrencies doesn’t have to be guess work. Crypto prices often move in patterns.
Chainlink TA- Double Bottom Reversal Pattern- New Link Price Levels to WATCH
The patterns are formed due to a number of factors, including movement between support and resistance levels, market sentiment, and the emotional response investors have to certain price levels.
These patterns can many times predict what direction the price will go in the future, and can even help to predict price targets with a surprisingly high level of accuracy.
The patterns can also help advanced traders understand where to place stop orders – a type of cryptocurrency exchange order type that sells an asset at a specified price once the price is reached – to avoid taking a loss, or to avoid missing out on a rally.
Covesting’s Crypto Intelligence portal is equipped with a number of resources for you to learn how to identify these patterns, including a Trade Ideas section with charts from top traders.
To get you started, here are ten of the common patterns that can be identified in cryptocurrency price charts, and can help you become a more profitable cryptocurrency trader.
A bull flag occurs when sellers are overwhelmed by a strong break of resistance with volume from buyers that results in a long pole.
The Psychology behind Double Bottom Reversal
Once the pole’s advance is broken, the flag forms, often tilting slightly downward. Bull flags can be seen both as a reversal pattern as well as a continuation pattern.
The flag is comprised of price movement between two parallel trendlines until either trendline is broken – typically to the upside as bull flags are bullish chart patterns.
Ascending triangles show strength from bullish buyers, as the buying pressure causes the price to form increasingly higher lows, creating an ascending lower trendline.
The upper resistance trendline is flat, until it is finally broken toward the apex of the triangle.
In a falling wedge, a series of lower highs and lower lows are forming, creating a downward-sloping, wedge-like pattern as the range tightens and price consolidates.
Falling wedges can form both as a continuation pattern and as a reversal pattern. However, a falling wedge forming at the bottom of a downtrend will typically signal a reversal, while a falling wedge during an uptrend usually signals a continuation. This makes the falling wedge a bullish pattern.
A bear flag occurs when buyers are overwhelmed by a strong break of support with volume from sellers that results in a long pole.
Once the pole’s decline finds support, the flag forms, often tilting slightly upward. Bear flags can be seen both as a reversal pattern as well as a continuation pattern.
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The flag is comprised of price movement between two parallel trendlines until either trendline is broken – typically to the downside as bear flags are bearish chart patterns.
Descending triangles show strength from bearish sellers, as the selling pressure causes the price to form repeated lower highs, creating a descending upper trendline.
The lower support trendline is flat, until it is finally broken toward the apex of the triangle, usually to the downside. In a recent example, Bitcoin was in a descending triangle for most of 2018 when it finally broke to the downside, bringing it to new yearly lows.
In a rising wedge, a series of higher highs and higher lows are forming, creating an upward tilting wedge-like pattern as the range tightens and price consolidates.
Rising wedges can form both as a continuation pattern and as a reversal pattern. However, a rising wedge forming at the top of an uptrend will typically signal a reversal, while a rising wedge during a downtrend usually signals a continuation.
Double Bottom Chart Pattern Strategy
This makes the rising wedge a bearish pattern.
Symmetrical triangles indicate two things: indecision in the market, and price consolidation.
Price ping-pongs between an increasingly tightening range, forming both lower highs and higher lows. Symmetrical triangles can break up or downward, and can be found during both uptrends and downtrends, giving it its neutral pattern designation.
Volume usually trends downward as both buyers and sellers wait for a clear break to either side. The break typically occurs three-quarters of the way to the triangle’s apex.
Head and Shoulders
Head and shoulders tops are important reversal patterns to watch out for in an uptrend, that can often signal that the uptrend is about to end.
The pattern itself displays a “tug-of-war” between buyers and sellers as there is indecision in the market, and the pattern is a clear sign that the tides are turning from an uptrend into a downtrend. Price increases until a rejection occurs and the price forms a left shoulder. The uptrend appears to resume, breaking the previously rejected resistance level, but is rejected more strongly at the next key resistance level, forming a head.
At this point, volume begins to decline as traders become wary that their current position may be in danger. Finally, when the price is then rejected again, creating a right shoulder.
Double Top and Bottom
As the right shoulder price movement breaks the neckline, traders exit their position which creates a strong increase in sell volume and a powerful reversal.
A double bottom – sometimes called a W bottom when the sides of the structure are uncommonly tall – forms when a strong bounce occurs at the same support level twice.
The second bounce gives investors increased confidence in the strength of the support level and seller’s inability to push the price to new lows.
Buyers typically follow through with volume which can often signal a strong reversal and a rally results.
Inverse Head and Shoulders
The inverse head and shoulders bottoms are exactly what it sounds like: a head and shoulder top in inverse. The same market sentiment and trader emotional states are at play, simply in the opposite direction.
Inverse head and shoulders bottoms are important reversal patterns to watch out for in a downtrend, that can often signal that the downtrend is about to end. The pattern itself displays a “tug-of-war” between sellers and buyers as there is indecision in the market, and the pattern is a clear sign that the tides are turning from a downtrend into an uptrend.
Price decreases until a bounce occurs and the price forms a left shoulder. The downtrend appears to resume, busting through the previous support where the bounce occurred, but beyond this at the next support a stronger bounce happens, forming a head.
Double Bottom Definition
At this point, volume begins to decline as traders become increasingly indecisive. Finally, the price bounces at support yet again, creating a right shoulder. As the right shoulder price movement breaks the neckline, traders scramble to enter positions which creates a strong increase in buy volume and a powerful reversal.
All chart pattern examples courtesy of John Kelvin.
Kelvin’s charts and trade ideas can be found in Covesting’s Crypto Intelligence portal in the Trade Ideas section.
Double Bottom Chart Pattern Strategy – Buy Rules
There, many additional chart patterns can be found. We recommend you familiarize yourself with these patterns to become a more profitable trader.
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Sign up today to create your trader profile so you can be ready when the copy-trading features launches, and in the meantime enjoy the most cutting edge trading platform in the entire cryptocurrency space.