A double bottom is a buy setup or signal. It occurs when the price action penetrates the lower band, rebounds and then a subsequent low is formed that is above the lower band. The second low does not have to be lower than the first one, or vice versa. What’s important is that the second low does not touch or penetrate the lower Bollinger band. This bullish setup is confirmed when the price moves above the middle band, or simple moving average.
Figures 7 and 8 are two examples of the double bottom buy signal at work.
Figure 7 – A Double bottom setup in the EUR/JPY.
Figure 8 – A double bottom setup that predicts an upswing using EUR/USD pair.
The double bottom in figure 8 can be interpreted as both a short term and a long term signal.
