Technical AnalysisAcademy

How to Trade the W-Shape or Double Bottom Market Structure | Best Entry and Exits

In the market today we see that technical analysis is becoming of greater use than ever as leverage traders and day traders become even more common in the market than a couple of years back when the sole aim was just to buy and Hodl for a long period of time.

In the past, most traders usually just had to buy and hold their coins for a long time or a specific period of time, but usually in relatively longer intervals to make profit in massive gains, but today we see that more day traders who are in the market for quick gains here and there. They buy and sell in very short period of time with the aim of accumulating little profits into a making a big portfolio.

In technical analysis we either take the approach of using the price action and patterns of the previous market prices to determine the possible next move in the market or we use the indicators available to us to determine which direction or which price the market is going to take next.

And in approaching the market from a price action point of view or technique, we put so many structures into consideration depending on that with a trader finds particularly more effective for him. One of such structures is what we are going to be looking at today being the W-shape or what is most commonly called a Double Bottom.

This shape is formed when the market takes a dip in price then a temporary rise in price called a relief bounce and then goes back to the previous price level which is the region of the first drop in price.

W-Shape otherwise called Double Bottom.

Now the biggest question every starting trader and technical analysts always have is, “What do I do when I see something like this“. Because spotting an opportunity is one thing, and utilizing it properly is another.

I will be breaking down the W-Shape market structure and how I trade this pattern in the market.

There are several phases in the W-shape, the first drop, which is usually just above a demand zone, and then a rise in price, but not as high as our previous high from the W. The third phase comes another drop which is caused by early sellers who take profit at that point and outweigh the buyers, so price takes a little plunge. Then comes the next phase which is the rise to the previous W high where price started dumping from. What causes this rise is the dominance of buyers who begin to buy as price hits the previous low, hence causing an inflation in price.

Now there’s two possible ways of picking a buy from this W shape. Some traders or analysts will buy after the 2nd drop, anticipating the forming double top. This is indeed a valid buy zone, but just like every other structure in the market, there’s chance of the market disrespecting it. However, the chances here are probably higher, given there is an underlying demand zone just below, which the market may be heading to, thereby taking out your buy.

The Chart above is a simple illustration of how I personally approach the double bottom market structure. While the second price low may seem a good buy zone in this market structure, I will always rather wait for the market to break above the point where the initial drop that formed the W started, and the successfully take a slight retest above it before I can declare it a valid buy.

Slight retest because I do not expect w big downturn in price yet at that point. The W itself is the real retest while the retest at the neck, or top of it, is usually very slight. A confluence of Liquidity, where early sellers begin to sell having seen a good surge in price off the W and the buyers begin to buy too given the hike in price off a dip as many wait for that as confirmation hence the little tussle in price at that zone.

Now at this point two things can happen at this point of liquidity where buyers and sellers meet.

If Buyers Outweigh the sellers at that point. A blast to the upside, which always goes to the next supply zone before another Liquidity tussle which many times brings about a retest of the previous demand zone.

Graphically Breaking down every possibility of a W-Shape or Double Bottom Market Structure

The other scenario is If the sellers outweigh thee buyers at that zone, it’ll always bring about a big drop off in price, usually to the next demand zone, which is always below the W.

What usually happens after a failed Retest at the top of a W-Shape

Basically, my Confirmations for the W-Shape structure is to wait for a successful retest at the top of the W, once price is holding firmly without signs of weakness, I place my buy. If price break below the the previous high than started the drop which formed the W, I wait for price to try and rally against that point, this time as resistance and no longer support, if price is failing to break above it swiftly, then I place my sell order.

It is indeed worth noting that no method or pattern in the market is fully efficient or totally consistent, but many patterns do play out more often than not, when we’ll studied and deployed. This Double Bottom technique is one of such.

When you open your charts next time, do watch out for a shape like this one, and try to put to practice the thing that you have learnt today, more times than not, you will come out profitably from the market.

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