When it comes to spotting reversals before they happen, there are two general strategies that traders tend to use. One is to simply study price charts and wait for price to suddenly reverse, then buy in the reversal. The other is a more deft approach, and involves a bit of psychology, and so it is known as “fundamental analysis.”
We all have our favorite trading books, and for many of us, those books tend to be from our trading heroes. These books have gotten us through rough patch after rough patch – they’ve taught us the fundamentals of successful trading, and even though there is no one-size-fits-all trading system, their lessons have proven to be true over time.Trading with the trend is one of the best ways to make a profit. When traders learn to spot a new trend quickly, they have the opportunity to buy with a good risk-benefit ratio. Traders must not only be able to recognize a trend, but also recognize when it changes direction.
While there are several patterns that signal a possible change in trend, one of the easiest to spot is the double bottom pattern. It can help traders change their strategy when the trend changes from bearish to bullish.
Let’s take a look at the double-bottom line model and identify some of the best ways to negotiate it.
What is a raised floor?
The double bottom pattern forms after a downtrend and consists of two lows roughly around a similar horizontal plane, with a slight spike between the lows. If the price breaks out after the formation of the secondary low and closes above the secondary high, the setup is complete. This is a reversal pattern that leads to a change in the medium and long term trend. Because the pattern resembles the shape of the letter W, some people also call it a W bottom.
BTC/USDT daily chart. Source: TradingView
Bitcoin (BTC) has been in a downtrend since peaking at $19,798.68 in December 2017. The 6th. February 2018, buyers halted the decline at $6,000.01. Then the relief rally peaked on the 20th. February 2018 $11,786.01. This level turned out to be a resistance and the 1st. In April 2018, the price fell again to $6,430.
It looked like a double bottom, but the bulls could not push the price above the $11,786.01 resistance level. This means that the double-bottom model was incomplete.
Although the USD 6,000 limit has been held for a long time, the trend has not changed from a downward to an upward one. Finally, the BTC/USDT pair fell below support and took a hit on the 14th. November 2018 has resumed the downward trend.
A double bottom is an important reversal pattern that signals a change in trend, but there are some important points to note.
Before the first bottom is formed, the trend must be down, because if there is no downward trend, there will be no reversal. Before buying, traders should wait until the pattern is completed by a break through the resistance line, as in many cases the pattern fails in a downward trend.
When a long-term trend reverses, it usually exceeds the target level of the configuration model. Traders can use the target as a reference, but should not rush into a position based on this target alone.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Cointelegraph.com. Every investment and every transaction involves risk. So do your own research before making a decision.
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