How to calculate the increase of the monthly double bottom pattern breaking through the neckline?

Understanding the Monthly Double Bottom Pattern

The monthly double bottom pattern is a reversal chart formation that appears on monthly timeframes, indicating a potential shift from a downtrend to an uptrend. This pattern consists of two distinct lows at approximately the same price level, separated by a peak. The neckline is drawn across the high point between the two bottoms and acts as a key resistance level. When the price breaks above this neckline, it signals a possible bullish move.

In cryptocurrency trading, recognizing this pattern on the monthly chart can be a powerful tool for long-term investors. Unlike shorter timeframes, the monthly timeframe provides a broader context, making the pattern more reliable when confirmed.

Important: A valid monthly double bottom must have clear separation between the two lows, with volume typically increasing during the breakout.

Identifying the Neckline in Cryptocurrency Charts

To calculate the potential increase after a breakout, the first step is to correctly identify the neckline. In the case of the monthly double bottom, the neckline is formed by connecting the highest point between the two bottoms. It may appear horizontal or slightly sloped depending on the market structure.

When analyzing crypto charts like Bitcoin or Ethereum on a monthly basis, traders should look for:

• A clear downtrend preceding the pattern
• Two distinct troughs forming at roughly the same support level
• A peak between the two lows that establishes the neckline

Important: The accuracy of the neckline determines the reliability of the breakout signal. Misplacing the line can lead to false interpretations.

Measuring the Potential Price Target

Once the monthly double bottom pattern is confirmed through a breakout above the neckline, the next step is to estimate the potential upward movement. The standard method involves measuring the vertical distance between the lowest point of the two bottoms and the neckline. That distance is then projected upwards from the breakout point.

For example:

• If the neckline is at $30,000 and the lowest low of the double bottom is at $25,000, the height of the pattern is $5,000.
• After the price breaks above $30,000, the projected target becomes $35,000 (i.e., $30,000 + $5,000).

Important: This projection serves as a minimum target and does not guarantee that the price will stop there. However, it gives traders a realistic expectation based on historical patterns.

Confirming the Breakout on Monthly Timeframes

A crucial aspect of the monthly double bottom pattern is confirming the breakout. Since the pattern forms over several months, the confirmation should come with strong momentum and increased volume. Traders often wait for a close above the neckline rather than relying on intramonth spikes.

Key considerations include:

• The breakout candle should close decisively above the neckline
• Volume should show a noticeable increase compared to previous months
• Retest of the neckline as new support is a positive sign

Important: False breakouts are common in crypto markets due to volatility. Waiting for a monthly close above the neckline helps filter out noise and confirms genuine momentum.

Applying the Calculation to Real-World Crypto Examples

Let’s apply this method to a real-world scenario using Bitcoin's historical data. Suppose the monthly chart shows a double bottom forming with lows around $18,000 and a neckline at $24,000. The vertical distance between these levels is $6,000.

Following the breakout:

• Bitcoin closes above $24,000 in a given month
• The measured move suggests a target of $30,000 ($24,000 + $6,000)
• Traders can set take-profit levels accordingly while monitoring for any signs of reversal

Important: Historical examples such as Bitcoin’s 2015 and 2019 monthly double bottom patterns have shown that this strategy works effectively in major crypto assets.

Frequently Asked Questions

Q: Can the monthly double bottom pattern appear in altcoins?Yes, the monthly double bottom pattern is not exclusive to Bitcoin. It can form in any cryptocurrency that has sufficient trading history and liquidity. Altcoins like Ethereum, Litecoin, and even some large-cap tokens have exhibited this pattern in their monthly charts.

Q: How reliable is the monthly double bottom in predicting future prices?While no chart pattern guarantees outcomes, the monthly double bottom is considered one of the most reliable reversal patterns due to its long-term perspective. Its effectiveness increases when combined with volume analysis and other technical indicators.

Q: What happens if the price retests the neckline after breaking out?A retest of the neckline is common and often viewed as a healthy consolidation phase. If the price holds above the neckline during the retest, it reinforces the validity of the breakout. However, a failure to hold the neckline could invalidate the pattern.

Q: Is it necessary to use candlestick patterns along with the monthly double bottom?Using candlestick formations near the neckline or at the lows can enhance the accuracy of the pattern. For instance, bullish engulfing or hammer candles near the second bottom can provide additional confirmation of a potential reversal.