W Pattern Double Bottom Is a Reliable Bullish Trading Signal

Overview

The W Double Bottom pattern is visible on both the daily and hourly SP 500 FUTURES Renko charts. However, confirmation is lacking because the index failed to close above the most recent all-time high close, 4176. Perhaps Monday will be the day to officially confirm the W.

What’s Next

The 4176 level is critical. It will either become a support or a resistance level. Given the current positive market sentiment, 4176 is expected to become the support level. On the down side, the 4128 double bottom should offer solid support. On the upside, if the potential W double bottom pattern formation is verified, the SP 500 Futures should be able to move higher with ease. Because 4200 is a round number, considerable resistance is expected in its vicinity.

This is the daily SP 500 FUTURES Renko chart.

 
 
 

This is the hourly SP 500 FUTURES Renko chart.

 
 

What Is the W Pattern Double Bottom?

The low is tapped twice, forming a pattern that resembles the letter “W.” The low is seen as a support level and a bullish pattern in technical analysis. The W or Double Bottom pattern does not offer a 100 percent accurate bullish signal. Nonetheless, it is fairly accurate, about 75 to 80 percent of the time. The more cautious trader should wait for confirmation, i.e. the price has climbed above the previous high, which then becomes the new support level and is ideally retested, as seen below.

It is critical to remember that traders must wait for pattern confirmation to avoid a false breakout and, as a result, a failed formation. When a breakout of the W double bottom pattern’s neckline is not verified and a long position is placed too early, the price reverses downward and the long position incurs losses. A complete double bottom happens when prices climb above the highest point of the whole formation and are able to close above it. If correctly spotted, the double bottom might signal a fantastic entry point for investors, as it indicates that the stock has struck a crucial support level and is having trouble going down.

Leave a comment

Your email address will not be published. Required fields are marked *