V-Bottom Pattern Strategy, Must Try

The V-bottom pattern gets its name from the V-shaped rule that occurs when price momentum moves from a bearish marketing to a bearish buying situation.

This chart pattern is a strong bullish retrogression pattern and occurs throughout the market and duration frame but due to the violent buying behavior that occurs when the market is turning upside down, it can be difficult to spot this pattern in real-time.

The chart above proves a perfect V-bottom at the end of the bearish style in Anom Oil. Price traded smaller to the downside and quickly turned bigger with a big pick-up in momentum. It's almost impossible to calculate a V-bottom, but most traders will wait for the price to break the pattern's neckline and then enter a buy position after the price tries the neckline.

Trader's Guide: An early sign that a V-bottom is re-establishing is the presence of a 1-3 bar retrogression accompanied by an increase in momentum and load during a downturn that bottoms out and an immediate escalation that follows.

Next up is a similar V-bottom pattern on Anom Oil but shown on the 4-hour chart. Note that although the momentum increased slightly at that low, there is a comparison of the momentum between the MACD-Histogram lows before the price turned bigger and the momentum increase which was appalling.

While this doesn't happen all the time, it can be another sign that confirms the creation of a V-bottom, especially when you start to see an increase in buying weight afterward. Therefore, observing price behavior using different duration frames can be very helpful when you think the V-bottom is in motion.

V-BOTTOM TRADE METHOD

The conventional method of selling a V-bottom is to wait for a break and close above the neckline and try to buy a position after the price has dropped back to the neckline and been rejected.

The perfect target can generally be defined above the neckline, similar to the distance measured from the low of the pattern to the high of the neckline.

The last chart above proves to be a good illustration of the V-bottom pattern in the SPY( S&P 500 ETF) that stopped the decline that had existed throughout 2018. The price dropped to a low point with a lot of momentum but immediately turned around with increasing momentum in the middle of a bigger path. .

There may be some confusion about where the neckline should be placed but advanced traders who have seen this V-bottom retrogression quite early may have tried to buy positions using whatever cradle created during the earlier marketing stages.

As we all know by now, SPY entered another solid bullish stage after the V-bottom and traded bigger for the rest of 2019.

Trading the V-bottom can be difficult because you will most likely only want to identify this pattern once the price breaks above the neckline, but if you then look at the momentum and load, then it could be an early sign that the V-bottom is working.

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