Strategies before a double-floor pattern

There are several investment strategies when we face this figure of technical analysis called  double soil.  This figure arises when the price of an asset returns to touch the same minimum price at which it had previously dropped, forming the figure that can be seen in the image.

It is important to mention that there is no exact rule of action in the presence of this figure and it may not always work, although it is true that it helps to interpret the price action to investors in decision making. There is a risk that the market will turn around, and therefore, it is always convenient to use a stop loss of protection, or to know when to exit the operation in case the interpretation of the figure is incorrect. There are different investment strategies when double soil arises:

1. The most common strategy with double soil is to  get long (buy) 

Investors who decide to buy are more conservative, since they follow the theory. This strategy can be done from two different points:

  • When the price exceeds the line that theoretically confirms the change in trend. Usually when you perform the impulse known as throw back. They set a profit target in the target area in the image above, which is twice the distance between the double floor and the change confirmation. During this last impulse the volume is usually increasing.
  • When the price exceeds the closing price of the candle that has marked the ground 2.They set a profit target in the distance indicated from the maximum marked as confirmation of change in the figure drawn, which coincides with the impulse known as throw back to the double floor level. There are three ways to enter:
    • Wait for the price to fall minimally below the double-floor area to buy.
    • Wait for the formation to be confirmed, buying once the price has risen at least 1% compared to the price that has marked the double-floor figure. It is a more aggressive strategy
    • Another good way to enter is by introducing a purchase order limited in the prices of the candle before the double floor is formed. If the price turns around, it will be bought and you will be well positioned on the rise. If, on the contrary, the preferred price continues to fall, the purchase order will not be activated, saving you the loss of the descent.

2. There are analysts who consider it more reliable to fall short  (sell)

There are investors waiting for a market trap and a break of at least 1% to introduce bearish positions and go against this theory. It is a strategy that is considered very aggressive.

by Abdullah Sam
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