The double bottom price pattern is believed to be a sign of existing downtrend reversal. Prices are expected to begin a rally following its formation, while the longer it takes for the pattern to be formed the more reliable it is.
Formation
The price dynamics under the pattern is similar to the Latin letter “w”. The two most recent lows of the price represent a strong support area where investors reversed their short positions thinking the asset is underpriced at this level. On the other hand the most recent local high is considered to be a resistance level.
Interpretation of Double Bottom
When the market price breaks above the pattern’s maximum or resistance level (plus certain deviation is possible), the formation is considered to be completed and can be interpreted as change in direction of the trend upwards serving as a buy signal.
Target price
Following double bottom pattern formation the price is generally believed to rise at least to its target level, calculated as follows:
T = R + H, Where:T – target level;
R – resistance level (recent local high);
H – pattern’s height (distance between support and resistance levels).
You can see the graphical object on the price chart by downloading one of the trading terminals offered by IFC Markets.