Hello friends, and welcome to this podcast by Angel One.
Aaj hum ek pattern ke baare mein baat karne jaa rahe hain, jo aapko next downtrend ke reversal ko predict karne mein madad kar sakta hai. Iska naam hai double bottom pattern. Lekin uske pehle, suniye ye story, jo aapko is pattern ke baare mein kuch context degi.
Rahul ek young investor hai, aur woh ek company ke stocks closely follow kar raha tha. Usne is stock ke price charts ko notice kiya, aur historically, ek particular pattern har saal repeat hota hai. Unable to infer a reason, usne socha, ki let’s wait and watch. In the meanwhile, let’s return to our topic of discussion. What is a double bottom pattern, and how to recognize it?
First of all, ye janiye ki double bottom pattern aap multiple types of charts mein spot kar sakte ho. Jaise ki candlestick charts, line price charts and even bar charts.
Double bottom pattern tab form hota hai, jab kisi security ki price downward, fir upward, and again downward move karti hai which means, twice, and in succession. Next, you ask - kitna movement? And smart question. Toh let’s look at the intricacies of this pattern, taaki aap is pattern ko ek pro ki tarah spot kar pao.
Firstly, double bottom pattern mein do troughs ya fir bottoms form hote hain. In me se pehla trough 10-20% ki range ka drop hona chahiye. Next trough ya bottom first trough ke comparison mein 3-4% ki range ke bahar hona chahiye. Ye hue bottom points, jo double bottom pattern ka basis hote hain.
Next, agar aap in do bottoms ke beech ke gap ke baare mein baat karte hain, toh it can be anywhere between one and three months. Jab first bottom form hota hai, toh iske baad underlying security ki price upward move karti hai. Do note ki first bottom ke baad security ki price ek high ke around lambe samay tak move kar sakti hai. Iska matlab ye hota hai, ki security ki demand increase toh ho rahi hai, lekin market isn’t convinced enough to lead to a breakout.
Since the price hangs near the resistance level around the neckline, it indicates ki there might be another upcoming downward movement. Is high point ko neckline bolte hain. After this is when the next trough is formed.
Another thing to look for is volume. When the price hangs near the high, aap volume ko dekhkar ye infer kar sakte ho, ki there is a reversal to the buy side.
This brings us to the next interesting point. But let’s see what Rahul did.
Rahul ne jab next bottom dekha, toh he was convinced ki yeh double bottom pattern form ho raha hai. Isliye, he went ahead and usne woh stocks purchase kar liye, in the hopes of a reversal. Fast forward one month, aur prices further downward move hote chale gaye. Where did he go wrong?
Rahul ne double bottom pattern ko completely study kiya tha, lekin usne ye realise nahi kiya ki in do bottoms ke pehle downward movement zyada significant nahi tha.
This brings us to the next important point - always look for a significant downtrend before looking for a double bottom pattern. Since ye pattern trend reversal predict karta hai, it also follows ki there has to be a preceding trend to reverse.
Rahul suffered a loss, lekin it wasn't a big loss. Kyunki usne buy karne ke baad ek comfortable aur calculated zone mein stop loss place kiya tha. Smart, right?
Toh friends, ye hue double bottom pattern ke basics.
Lekin agar aap is pattern ko form hote hue dekh rahe ho, toh how can you trade it? Chaliye jaante hain, through these 4 important points to remember.
Jab kisi security ki price second bottom ke baad upward move kar rahi ho, toh aapko volume par dhyaan dena hai. Trend reversal tabhi ho sakta hai, when there is significant volume at this point. Aur agar aap reversal par bet kar rahe ho, toh dhyaan rahe ki aap baaki sab fundamentals par dhyaan de rahe ho.
Next point: Aap first trough ke baad high form hone par long position occupy kar sate ho. Aap second bottom ke trough ke just below stop loss fix kar sakte ho.
Third: Gains ke liye price target set karte hue, aiming for double the stop loss target after entry price is a good idea.
Aur last point: Jab price neckline ke beyond break karti hai, toh it might find a new support level. Is point par aap firse long position occupy kar sakte ho, or go short.
Interesting, right? So basically, a double bottom pattern looks like a ‘W’. Iska counterpart hota hai double top pattern, jo ek M shape form karta hai, and instead of predicting reversal of a downtrend, ye depict karta hai reversal of an uptrend.
Doston, double bottom pattern se aap market ke sentiments mein shift ko spot kar sakte ho. Lekin as always, you should always remember that doing fundamental analysis and looking at other sectoral news is the key to executing successful trades and making right predictions.
Toh doston, aaj ke podcast mein itna hi.
Angel broking ki taraf se aapko alvida.
To know more about other candlestick chart patterns and concepts in stock trading, visit www.angelone.in.