TRADE LESSON: HOW TO TRADE THE BEST DOUBLE BOTTOM PATTERNS

By ITMS SCHOOL on November 10th, 2009 3:27pm Eastern Time

One of the most common and best patterns is the double bottom pattern.  This is simply when the market seems to retest a low and then bounces higher off the low level.  It is important to watch for the double bottom low to pierce the prior low before reversing back higher.  This is because market makers are looking to bait in momentum short traders and then come in and rip it against them.  Once they are forced to cover their short trade by buying back the stock it creates extra momentum to the upside and therefore pushes the stock even higher.  The best double bottoms usually have prior support levels on the chart.  In the example below you can see the prior support on CAT at  the 54.25 area on October13th-15th.  This is signaling that CAT should have good support at this level.  Remember as traders we are always looking to increase the odds and make the trade more favorable.  Please understand it is always prudent to use stops and good money management in any trade.