The Double Bottom is also known as a price reversal model. This pricing pattern is usually quite recognizable but highly profitable for the trader. Therefore, it is trending in technical analysis. This article will learn the basics of double funds, when traders use them and how to apply them in cryptocurrency trading.
What is a double-bottom model?
A double bottom is formed after two consecutive funds are equal and a peak between them.
This is a perfect model used by professional traders in technical analysis.
This pattern usually appears after a downtrend is about to end to reverse an uptrend. When there is a previous downward trend, a double bottom is formed, signaling an imminent uptrend. If the second fund is higher than the first, a stronger rise is likely.
How to recognize a double-bottomed model?
To recognize a double bottom on a chart, you need to identify a few features:
- The two funds must be leveled or slightly higher/lower than each other. When connecting 2 funds, there will be a horizontal or slightly inclined support line.
- The peak between the two funds is the small peak. The horizontal line that passes through this peak forms a line of resistance called the neckline.
- After the price has completed 2 lows and rises above the support line, forming a crossover point, that crossover point is called Breakout.
- After making a breakout, the price usually drops slightly to retest the resistance on the support line. If the price tests the resistance and rises again, the reversal pattern is more strongly confirmed.
The double-bottomed model in ETH’s 1D chart, price retested on August 3, 2021
How to trade with double bottom chart template in trading coin?
Use the double-bottom chart to identify a signal to buy coins
When using graphical patterns to trade coins, the longer the time period, the greater the accuracy. To identify a buy signal, you need to determine enough of the following factors to confirm the pattern:
- Before identifying a double-bottom chart pattern, it is necessary to confirm a strong previous downward trend.
- In particular, this graphic scheme must have 2 equal or almost equal minimums. Especially if there is a difference, the next fund is higher than the previous one, which will have a higher confirmation.
- The model is only really completed when the price has gone through the breakout point, and if there is a new test, the stronger the reversal will be.
- If the price fails to break through the breakout point and breaks the pattern, the price increase is not confirmed.
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After the chart meets the criteria, you place an order to buy coins as follows:
- Buy a small order of coins after the price has completed the breakout.
- The 2nd order you buy after the price completes the new test. This is usually the most appreciated and safe point of purchase.
How to set the stop loss, take profit?
- Place the stop loss below the nearest fund
- Take profit from the distance from the breakout point down.
Above is how to trade coins using the double-bottom model in technical analysis. This model is applied quite effectively in the cryptocurrency market, especially with 1D and 4H times.
However, any trading method has a probability and requires a lot of practice in practice. In particular, you should incorporate other confirmatory factors when making trading decisions.