DAX40 Double Bottom Formation In The 4 Hour ChartI am looking at a possible double bottom formation on the DAX40 on the 4-hour chart.
We have seen nothing but bearish price action since we hit the daily resistance level around the 1395 price point on the 17th of August.
Since then we have been making lower lows and lower highs, forming a descending trend line.
We have tested this descending trend line twice.
What is interesting about the second time we touched the trend line is that the second tap coincided nicely with retesting previous support flipped resistance.
I have highlighted the neckline in yellow and have extended this zone to the left and right and we can see that the top of the current double bottom neckline is testing resistance that was once support if we look to the left. So we have some nice confluences here lining up already.
Looking at the two bottom peaks, we can see they are around the same price level but looking below at the MACD, we clearly can see full divergence. The Histogram is weakening and the MA lines are trending upwards as well. This means that the bears (sellers) are weakening and at some point, the bulls (buyers) should be stepping in and taking control.
When trading double tops and double bottoms, we always look for full divergence because this adds confidence and confluence to the setup.
Now, to confirm this double-bottom formation, we need the rest of the formation to play out. We need the price to move impulsively upwards pushing past the descending trend line, then push and close above the neckline. We also need to see strong bullish volume accompany that bullish move. If we see that, and only If we see that, I will then be looking at reasons to go long. I will be waiting for a retrace back into the neckline and enter somewhere inside of the neckline retest.
My targets will be previous daily resistance.
Currently, we are still ways away from something like this happening. However, I wanted to bring this to your attention because it is good to be able to see patterns begin to form early. This helps us keep an eye on it and set alerts if need be. This also trains our eyes and gives us the ability to spot these patterns in the smaller time frames where the action occurs much quicker and decisions need to be made must faster.
Let's watch what happens.
If the double bottom formation doesn’t form and the price continues to drop, we may look for further short opportunities and other pattern formations. We can only trade what the charts give us.
Hope you all have a fantastic first of September.
See you on the next one.
The Vortex Trader
