Double Bottom Pattern

A double bottom is the mirror of a double top: price falls to a support area, bounces, falls back to roughly the same low, and holds. The shape traces a W. It is confirmed not at the second low but at a close above the high of the bounce between the two lows, and the height of the pattern is commonly projected upward from that break as a rough objective.

Two tests of the same low, and what they prove

A downtrend makes lower lows. A double bottom is where that sequence stalls. Sellers push price back to the same area twice and cannot get it through, which means the supply that drove the decline has been met by enough demand to absorb it. That is a real change in the balance, and it is why the second low is the informative part rather than the first.

• First low. Ordinary. Every downtrend makes lows and bounces off them.
• The bounce high. This is the working level. It is where the pattern is confirmed and where every calculation starts.
• Second low. It should test the first low, not break meaningfully below it. A marginally lower second low is common and usually fine, because stop orders sit just under the first low and a sweep of them is not the same as a breakdown.

Volume, where you can see it, tends to pick up on the push through the bounce high. In spot forex your platform shows tick volume from one broker's feed, not true market volume, so treat it as corroboration rather than proof.

Gold at 2,318, and what it costs to trade

Say gold falls to 2,318, bounces to 2,362, drifts back to 2,322 over a few days, then turns up. The confirmation level is 2,362. The pattern height is 44 dollars (2,362 minus 2,318), so the conventional objective is 2,406.

Those are the levels. The trade is a separate question. You buy a daily close above 2,362 and fill at 2,364. Invalidation is below the lower of the two lows, so the stop goes at 2,314. That is 50 dollars of risk for 42 dollars to the objective, about 0.85 to 1 before costs.

Now the sizing, which is where a small account meets reality. One standard lot of gold is 100 ounces, so a one dollar move is 100 dollars. A 50 dollar stop therefore costs 5,000 dollars per standard lot, 500 dollars per mini lot, and 50 dollars at the 0.01 lot minimum most brokers offer. On a 5,000 dollar account risking 1 percent, your budget is 50 dollars, so the smallest position available is exactly the largest you should take. On a 2,000 dollar account that same trade is a 2.5 percent risk at minimum size, which means the correct decision is not to take it. Run your own numbers through the position size calculator before you decide the pattern is tradeable for you.