Double Bottom Reversal

Entry Logic

• Enter long when price breaks above the midpoint of the "W" pattern.
• Confirmation requires a 5% increase in volume on the breakout bar.
• Use a 15-minute timeframe for this pattern.
• Entry occurs above the 20-period EMA.
• Strategy performs best in a ranging market.

Exit Logic

• First profit target is the 1.618 Fibonacci extension of the "W" pattern's height.
• Scale out 50% of the position at the first target.
• Use a 10-period ATR trailing stop for the remaining position.
• Exit if price closes back below the breakout point.
• Exit on a confirmed Double Top Reversal pattern.
• Exit the trade if it is not profitable within 4 hours.
• Exit if momentum, measured by the 14-period RSI, falls below 50.

Stop Loss Structure

• Place a hard stop 1 ATR below the second bottom of the pattern.
• A soft stop is a close below the 20-period EMA on the 15-minute chart.
• Maximum dollar loss is capped at $500 per trade.
• Maximum percent loss is 1% of the account.
• The structural stop is placed below the low of the entire "W" pattern.

Risk Management Framework

• Risk 0.5% of the account per trade.
• Daily loss limit is 2% of the account.
• Weekly loss limit is 5% of the account.
• Maximum drawdown is 15% from the peak account value.
• Minimum risk-reward ratio is 2:1.

Position Sizing Model

• Use a fixed fractional sizing model.
• Adjust position size based on the 14-period ATR.
• Use 1.5x size for A+ setups.
• Do not scale into trades.
• Scale out at predefined profit targets.

Trade Filtering

• Avoid trading during major news events.
• Requires a clear "W" pattern with two distinct bottoms.
• Trade only stocks with a daily volume over 2 million shares.
• Avoid trading in the first 15 minutes of the market open.
• Do not trade in low-volume, choppy markets.

Context Framework

• The market should be in a long-term uptrend on the daily chart.
• Price should be above the VWAP.
• Price should be above the 50-period SMA.
• The pattern should form near a major support level.
• The 4-hour chart should show a bullish trend.

Trade Management Rules

• Move the stop to breakeven after the first profit target is hit.
• Scale out 50% at the first target, 25% at the second.
• Do not add to winning trades.
• In fast moves, use a 5-period EMA as a trailing stop.

Time Rules

• The optimal trading window is between 10:00 AM and 11:30 AM EST.
• Avoid trading between 12:00 PM and 2:00 PM EST.
• The pattern is more reliable during the London session for forex pairs.

Setup Classification

• A+ setup: Perfect "W" pattern, high volume breakout, strong market trend.
• A setup: Clear "W" pattern, moderate volume, neutral market.
• B setup: Messy "W" pattern, low volume, counter-trend.
• C setup: No clear pattern, avoid.

Market Selection Criteria

• Trade major US stock indices and high-volume tech stocks.
• Minimum daily volume of 5 million shares.
• Minimum ATR of 1% of the stock price.

Statistical Edge Metrics

• Expected win rate is 60%.
• Average win is 3R.
• Average loss is 1R.
• Profit factor is 1.8.
• Expectancy per trade is 0.8R.

Failure Conditions

• The strategy fails in strong downtrends.
• A false breakout with a sharp reversal is a common failure scenario.

Psychological Rules

• Avoid forcing trades when no clear pattern exists.
• Trust the stop loss and do not widen it.

Advanced Components

• Use a market regime filter to identify ranging markets.
• A volatility filter can be used to avoid low-volatility periods.
• Avoid trading correlated instruments simultaneously.
• The daily chart must confirm a potential bottoming pattern.

Location

• The setup is strongest at major daily support levels.
• The setup is weakest in the middle of a range.
• The location of the pattern determines its probability of success.