A double bottom, combined with RSI divergence, can be a powerful signal for a trend reversal.
What's a Double Bottom ?
It's when a stock's price forms two distinct lows on a chart. The pattern is confirmed when prices rise above the peak between those two lows. Why Does It Matter?
The double bottom marks the end of a downtrend and the start of an uptrend. It's one of the most common patterns, but it needs careful analysis.
Adding RSI Divergence: RSI measures a stock's strength and momentum. Look for RSI to form higher lows while the price forms lower lows. This is RSI divergence and a strong bullish signal.
Key Points to Remember
Downtrend First: The pattern begins in a downtrend.
Time Gap: The longer the time between the two lows, the stronger the reversal signal.
Price Increase: Look for a significant price increase between the two lows (around 10-20%).
Volume Matters: Usually, volume is higher during the first low and increases as the pattern confirms.
Breakout Confirmation: Don't act until prices break above the confirmation point.
Pullback After Breakout: Expect a pullback after the breakout; it's normal. Trading the Double Bottom with RSI Divergence:
Calculate a target price by adding the pattern's height to the breakout point. Confirm the pattern only after prices break through the confirmation point. Be patient; not all patterns are double bottoms. Watch for volume during the pattern's development. Pay attention to RSI divergence for added confirmation.
Remember: Wait for confirmation, and don't rush into trades based solely on patterns. It's wise to use multiple indicators, including RSI, and keep an eye on market conditions.
I am not Sebi registered analyst. My studies are for educational purpose only. Please Consult your financial advisor before trading or investing. I am not responsible for any kinds of your profits and your losses.
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