Swing traders who hold positions overnight should wait until the double bottom is confirmed, which is at the moment a new higher high was formed after the double bottom.
For those going long immediately after the double bottom, the interim top on the daily chart after the first and before the second bottoms applies as the first price target (as showed in the previous chart on the hourly timeframe).
Those taking a long position after the interim high on the daily chart is broken can maintain the distance between the bottom and the highest price of the double bottom pattern as the first price target. However, any pre-existing resistance levels should be taken into account.
Since a double bottom represents a strong support level, it makes sense to place the stoploss just below the double bottom. As soon as the price closes below the double bottom the formation is considered invalid and you should liquidate your long positions to avoid larger losses. If the price eventually does recover you can always re-enter.
When a double bottom forms after a negative price trend at the level of pre-existing significant historical support levels, the double bottom pattern becomes a lot more reliable.
Also keep an eye on the volume when the double bottom forms. In particular, selling volume at the time of the intermediate decline and during the formation of the second bottom should remain relatively low.
Be attentive to any divergence signals with specific technical indicators. In this example, both the RSI and MACD show higher bottoms while the price bottom itself occurs at the same level. This means that the bearish momentum is clearly losing strength.
The ChartMill Team