Double bottoms are also trend reversal formations, but this time we are looking to go long instead of short. These formations occur after extended downtrends when two valleys or “bottoms” have been formed.
You can see from the chart above that after the previous downtrend, the price formed two valleys because it wasn’t able to go below a certain level. Notice how the 2nd bottom wasn’t able to significantly break the 1st bottom.
This is a sign that the selling pressure is about finished, and that a reversal is about to occur. In this situation, we would place an entry order above the neckline.
The price breaks the neckline and makes a nice move up. Remember, just like double tops, double bottoms are also trend reversal formations. You’ll want to look for these after a strong downtrend.
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