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.
Example: CBA
Commonwealth Bank has recently created what looks to be a double bottom after testing the key support level at $65.30. With the share price finding a bit of resistance roughly at $68.00, we could start to see CBA come back to test this resistance, and if it breaks through, we would have our confirmed Double Bottom pattern. CBA is also the bank that isn’t reporting in the next week, so will likely start to piggy back off either the support or fall of the others reporting. I have included in the title that this is a ‘possible’ pattern, as the share price hasn’t been confirmed by breaking through resistance yet.
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.
Contact us today on 03 8080 5788.
Regards,
Your Freedom Fighter,
Benjamin Farkas