Below is a slider quiz to test your ability to identify V bottoms and trade them. Captions appear below the pictures in red for guidance, so be sure to scroll down far enough to read them.
1 / 7
A V-bottom chart pattern is just like it sounds...only different when the right side fails to return to the price of the left side top. The left side of the V sees price drop in a near straight-line run down, with few or no pauses along
the way. Any pause should be brief. I set a minimum width of 3 weeks and no wider than 3 months to help remove bogus patterns. At the bottom of the pattern, price turns upward quickly,
often showing a tail, one day reversal, or island reversal pattern at the bottom. Price retraces 38.2% or more of the left side. I added this requirement to help prevent fake patterns, ones
which didn't perform as expected. There should be no pause as price rises, otherwise you might be looking at an extended V-bottom. I show a V-bottom at A
and another at B, but B might be too narrow to qualify. The drop leading to both patterns is steep and straight. The turn is fast and leads price to rise...at least for a time.
Pattern B doesn't see price return to the top of the pattern and that's a risk when trying to trade these. When looking for these patterns, keep in mind the 38% retrace. The right side
has to make a nice recovery or else it's not a V-bottom. Let's see if you can find some in the next slide.
2 / 7
Find as many V-bottoms as you can. For help, click here.
3 / 7
Patterns A and B are valid V-bottoms but C is not. The retrace after the turn sees price rise up to D, but that's short of the ~24.50 required. Let's try again in the next slide.
4 / 7
Find as many V-bottoms as you can.
5 / 7
This was an easy quiz. The three patterns are highlighted in red. All of them return to the launch price, or nearly so. They preformed well. Let's trade one in the next slide.
6 / 7
I show a valid V-bottom at A, meaning it has price retracing far enough on the right side to qualify. How far will price rise? Guess one of the lines B, C, D, or none of the above.
The next slide provides the answer.
7 / 7
Here's what happens after the V-bottom ended. The stock climbed to line D and then reversed. Although V-bottoms can make for nice swing trades because you know what the
launch price is, they don't always work. Unfortunately, only 52% see price climb on the right side of the pattern to match the top left of the pattern.