The perfect tourist moment ruined in an instant. You’re on the ferry heading across the bay to see Alcatraz. As you look over the rail to watch the waves, you’re treated to a horrific sight — a great white shark devouring a seal.
Just for show, he yanks his head and flips the fighting prey in mid-air only to catch it again with a better grip and heads below. If you think this was a random midday snack, you’re mistaken. Great white sharks are known for stalking their prey from below — spotting them, backing away and then returning for the kill.
It’s a hunting routine that puts them squarely atop the food chain — and something you can learn when stalking price.
In the sea of the market, a double bottom is the ‘seal’ of price formations. You can attack it with ‘great white’-like ruthlessness using three simple stalking methods that result in winning long trades.
A price formation that serves up a healthy profit
Young great white sharks will settle for fish and other relatively small sea creatures. Adults however won’t be satisfied unless they’ve munched on a sea lion — or better yet, a surfer.
Likewise, a double bottom in any market is an indication that a seven-course profit could be headed your way in the form of a long trade. Like a great white circling his prey, you simply need to know what to keep an eye out for.
When a support level is tested twice, the candles start to take the shape of a ‘w’, forming a double bottom with one downward movement and a second taking shape. This is an indication that this price level is being tested and has shown strong support once already.
For many retail traders, when candles form a double bottom, it’s a welcome and worrisome sight at the same time. Without effective confirmation that price is headed for a long trade, profiting from this formation can be like fishing for big game with a Barbie starter rod.
Here are three methods to stalk the double bottom like a great white on the prowl for easy game.
Volume confirmation you can count on for consistent profits
Once a congregation of seals has been spotted, great white sharks are known to stalk from a disciplined distance below. Usually from a base of operations about 100 yards away, these hunters watch for perfect conditions to snatch their victims.
When a double bottom presents itself, there are three signs to watch for that either individually or collectively can signal your move to strike.
They involve monitoring volume and unaware traders caught in their own trap. Watching for the following conditions can dramatically increase your successful strike percentage. Referring to our chart below, they include:
• Sequential Decline: At the tips of each candle, you can see when buyers and/or sellers lose steam as price reaches an extreme. Just as the name conveys, you will see a sequentially-declining number of buyers (or sellers) with each tick as you reach the tip. They are losing interest in this price level — a clear sign that price may be headed in the other direction.
• Responsive Activity: Just as price reaches an extreme, this is when the other side starts to step in. They’re highlighted because they’re doing this in overwhelming force, enjoying a 300% size advantage over the opposing side that’s backing away from that price level.
• Trapped Traders: There are always those who – thanks to an indicator, a late entry, or both – enter hoping for a breakout to the wrong side. They also can be spotted at the tip of a candle and will be looking to jump (or get stopped out) at their first chance.
Unlike the millions of retail traders who are holding their breath when this pricing development surfaces — you can dive in confidently.
Locking in profit while others run for safety
After checking a hunting area once, great whites wait for a single seal to separate from the pack. Then they make their move — and there’s little anyone can do.
When you see any of these conditions as a double bottom is formed, it should serve as your confirmation to pull the trigger. When they’re paired together, it’s like an invitation for open hunting.
While trapped traders panic as price heads in the other direction, you can make your entry — going long. With both of the above examples you had a few ticks to gain confirmation, isolate your location and make your move.
Once you’ve made your entry, watch closely for the identical conditions – going against you – as a sign that the run may be tapering off and it’s time to get out. When you see these conditions before your target, remember that discretion can be the better part of valor — with profits in hand, enjoy your meal and exit.
Discipline that keeps you from being drawn into a loss
Even a predator as formidable as a great white measures their attack before making a run at prey — however easy the target may seem. For as tempting as a double bottom may seem in its early stages — be mindful that you could be dealing with a trend.
Using sequential decline, responsive activity, trapped traders, or any combination thereof, serves as vital confirmation that locks a long. It also protects you from being on the wrong side of a breakout. It’s the retail trader who simply sees a candle formation and jumps in. The seasoned pro nailing consistent profits, either for themselves or their institution, gets confirmation first. It’s the difference between earning a full-time income, or winning and losing the same money over and over.
Double bottoms are layup longs: only when confirmed by volume.
Turning double bottoms into a lock for profits
It’s said that great white sharks stalk their prey with the obsession of a professional assassin. They’re methodical, disciplined and ultimately ruthless.
While your trading ambitions are more noble, your confirmation methods can’t afford to be anything less than lethal.
Look for sequential decline, responsive activity and/or trapped traders. Any one of these conditions are indications that you should move in for the kill. Coupled together, they are invitations for open hunting.
Attack your long position decisively, knowing that you have the benefit of real-time intelligence thanks to Order Flow Sequence Tracking Intelligence.
Confidently take your profits, while millions of retail traders wait with a hook and a worm, praying that winners will happen by.
Noft Traders offers a Funded Trader Program. To learn more, visit their informational page at NOFT-Traders.com.