Morphology (Double Bottom)
Introduction to Double Bottom
Double Bottom is a sign of market transiting to Bull trend
- This pattern is quite intuitive and clear at a glance
- Double Bottom has two lows (Left & Right foot)
- The line connecting the turning point and the two ends is the Neckline
- The relative height of the left foot and the right foot is not absolutely even
What is a neckline?
- Important trend line for Bull-Bear combat;
- Turn Bear when the big black candle sinks below the neckline
- Turn Bull when the big white candle breaks through the neckline
What does the bottoms mean?
- The Bottoms are the market’s test of the price floor
- After two attempts of challenge, the bottom is established
- After breaking the neckline, the price will still pull back to the neckline to test support
- After the test breakthrough didn’t occur, it starts to rise
- According to historical experience, the ratio of “Neckline to Bottom” and “Target to Neckline”, is about 1:1
1. After confirming the establishment of the pattern, Buy a Long order when the neckline retracted to (39.03)
2. The price difference from the right foot to the Turnaround point is about $1.41, and the estimated target price can be placed at (40.44) = 39.03+1.41
3. After reaching the target price, take profit and exit!
Case Explanation: Triple Bottom
1. After confirming the establishment of the pattern, buy long orders when the neckline is retraced
2. As in the previous example, since the distance between segment A and segment B is the same, the target price can be calculated from this
3. The triple bottom is more stable than the general double bottom because it has been tested three times at the bottom.
- The market will still be affected by market news most of the time, and will not rise and fall completely according to the established pattern.
- Investors can cross-reference other technical indicators to improve trading odds
- Morphology is only summed up based on historical experience and cannot be overly relied upon
- The most important thing in investing is to set take-profit and stop-loss before entering the market
- Once it falls below the stop loss level, you must keep your promise to exit and break even
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