Welcome to Bravechart. Your in-depth article on chart analysis from a Scotsman stationed in the Outback.
As traders, we use technical analysis as a reliable method for speculating on future price direction of both equities (shares) and indexes. Technical Analysis in simple terms is the study of historic price movements in a chart in search of patterns or consistently traded support and resistance levels. Today we are looking at a Double Bottom.
Appearance: A double bottom pattern comprises of:
- A strong rally to the downside with bearish movement and high volatility
- A bounce off a new support level and reversal heading bearish with volatility decreasing
- The bullish move comes up to a resistance level and once again reverses to change bearish
- The second bearish move down comes close to the support level seen before
- The final bullish move up comes after hitting support, with the volatility increasing back up as the bulls take over and breaks the resistance level
Pattern: The Double Bottom Pattern is a common chart pattern you will see when looking at a bullish market. You can see that when the stock hits that key support level, the share price moves up to start looking bullish. Once it has hit its resistance level, it usually changes to bearish straight away, and finally goes bearish to bullish one more time.
Important Note: The Double Bottom is only confirmed once it has broken the resistance level and continued higher. If this doesn’t happen, you would be either looking at a channel forming, or a double bottom possibly changing to a double top and then going on to break support and move lower.
Metcash has recently shown this pattern when the share price bounced off support at $2.62, creating the double bottom after falling from resistance around $3.05. With the share price having since then rallied, it is looking likely that this pattern will play out and we will see the share price rise back up to possibly test the $3.05 resistance level, or just below. The share price has stopped today on the 100-day moving average, but if sentiment and buying power continues, we could see the next test for Metcash at the 50-day moving average – $2.87. The strong move higher today was also a signal for us to enter a mini long on this stock, and one we will hopefully see come test $3.00.
There are many ways that you could take advantage of these patterns. As a specialist in derivatives, we are able to profit on a stock when it falls as well as when it rises.
If you would like to learn how to pick a stocks direction, then Join us at our live face to face one day “Technical Analysis, Picking the Direction of a Stock” course.
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