Section 7: Dip-buying technical form-double bottom (W bottom)

2023-10-10 10:52:28 UTC+81656
Highlights of this issue
1. Gate Contract Classroom Elementary Course: Helps users build a framework system for technical analysis, including K-line basics, technical forms, moving averages and trend lines, and the application of technical indicators;
2. This issue, as the seventh section of "Playing with Technical Analysis", will enter the study of K-line technical forms. Focus on introducing double bottom, one of the technical forms of bargain hunting, from concept, characteristics, meaning to practical application.
1. What is a double bottom pattern?
When the currency price falls to a certain price level, the trading volume shrinks, indicating that no traders are willing to continue selling, so the decline stops. The price then rebounded, driven by buying, and trading volume increased accordingly.
However, the rise soon encountered selling pressure, and the currency price fell for the second time. When it fell to a position almost equal to the previous low, the price stopped falling again, and at the same time, the trading volume shrank to less than the previous decline.
At this time, the price started to rise for the second time, and the trading volume was significantly larger than that of the first rebound. This advance successfully surpassed the highs of the first rally, marking the formation of a double bottom pattern.
Graphically, this technical graphic has two troughs, so it is called a double bottom. And because the shape is like the English letter "W", it is also called W base. as the picture shows:

Draw a horizontal straight line through the highest point of the rebound to become the neckline of the double bottom. The neckline serves as an important dividing line between long and short positions in a double bottom pattern.
2. Technical characteristics of double bottom
1. Appears at the end of a downward trend or a mid-term adjustment trend;
2. The two low points are on the same level, or the low point on the right is slightly higher;
3. The trading volume at the low point on the right side of most double bottoms is smaller than that on the left side, but when it rises for the second time, the trading volume will generally be greater than the first rebound;
4. The neckline of a double bottom is generally the horizontal line passing through the high point of the first rebound. Sometimes it is slightly tilted due to morphological reasons.
3. Double bottom application
A double bottom is a trend-turning technical figure, indicating that the currency price has bottomed out and is a buying signal. Specific applications are divided into the following situations:
1. Examples of real offer

The picture above is the daily chart of the Gate.io contract SOL/USDT. From 2020-9-1 to 2020-11-4, SOL fell from a maximum of 4.5u to a minimum of 1.28u, with a cumulative decline of 72.8%, and then began a strong rebound. to 2.4u. When profit-taking was taken from the bottom of the market and selling began, the currency price fell again to around 1.2u, forming a double bottom in the entire pattern. Since then, a wave of super bull market has started.
2. Double bottom buying opportunity 1: When a double bottom is about to form, it steps back again to form a second low and then starts to rebound. The currency price breaks through the neckline and closes the real positive line. This is the buying point 1, and the probability of continued growth in the future is larger. As shown below:

3. Double bottom buying opportunity 2: A double bottom is formed. When the currency price breaks through the neckline and rebounds to a high point and encounters resistance, it retreats to the neckline. If it does not break the neckline, it steps back to confirm the support. At this time, it is the second buying point. As shown below:

4. Double bottom buying opportunity three: after the price falls back to the neckline, it rises again and breaks through the previous price high. If the rising K-line entity crosses the previous high resistance level, it is the third buying point. As shown below:

Finally, let’s summarize the application skills of double bottom. First, draw a neckline through the rebound high point, and then confirm three buying points based on whether the rising K line closes the solid Yang line:
1. Break through the neckline, buy one;
2. Step back to confirm the neckline and buy two;
3. Break through the early rebound high and buy three.
4. Scenarios when double bottom construction fails
Even if a double bottom is formed, there is no guarantee that the subsequent rise will be foolproof. Once the price returns to the neckline support and falls below the neckline to close the solid negative line, it is a sign before the storm is coming, forming a sell signal, and the market outlook is likely to form a downward trend as shown in the chart.

Summary of this issue
"Dow Theory" is the theoretical basis of technical analysis. If you can deeply understand it, you will get twice the result with half the effort by learning technical analysis. Double bottom is also a typical application of Dow Theory in trend operation.
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Disclaimer
This article is for reference only. Such information provided by Gate.io does not constitute any investment advice and is not responsible for any of your investments. Contents related to technical analysis, market judgment, trading skills, traders' sharing, etc. may involve potential risks, investment variables and uncertainties. This article does not provide or imply any opportunities that can guarantee returns.
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