V bottom patterns are bullish patterns that look like the name they are called. The price reaches a peak level and begins to pull back or fall rapidly. Once the price has found a base, it makes a sharp, pointed reversal to the upside. Then, the price returns to the first peak level. Look for a breakout at the top of v to confirm continuation.
What Is a V Bottom Pattern?
A v bottom pattern consists of several consolidation candlesticks that form a v pattern. This pattern resembles the cup and handle pattern, but without the handle. And the shape is a V instead of a U. Watch to see if the price can move to the top of the V, breakout, hold, and continue upwards.
These patterns are known as reversal patterns. This pattern derives its name from the shape it forms on stock charts. It is common in all time frames. You could think it’s a cup and handle pattern, but the bottom is too sharp. The cup and handle form a U, whereas the bottoms have moved sharply enough to form a V.
Check out this cup and handle pattern setup on a 15-minute chart of $SPY.
V Bottom Pattern Basics
V bottom patterns form when the price creates the V shape at a support level. The price falls sharply, then reverses, and the breakout occurs when the resistance is broken. The resistance level is the top of each side of the pattern.
The beginning and end of V consolidation patterns are relatively flat. This forms a strong resistance level. This level must be broken for the stock to continue its upward trend. The bottom of the pattern is a strong support level. Once the stock reaches that level, it typically rebounds.
Patterns Within Patterns
V patterns can be inside other patterns. Cup and handle patterns resemble the V. While the cup and handle have a more rounded bottom forming a U, it still conveys the same meaning.
The price is about to reverse. You may see what appears to be a handle next to the V. This is a consolidation or pullback before another move. These consolidation patterns can also be a part of an inverse head and shoulders pattern. The V formation creates resistance in the head and shoulders, forming the neckline.
V Bottom Pattern Trading Strategy
- Watch for V consolidation that ends up forming the V pattern.
- Watch for the price to move up to resistance at the top of the V formation.
- Next, look for a price to break out of the top of the V formation.
- Then, watch if the price can hold the top of the V.
- Traders take a long position once the top of the V breaks and holds. Place the stop halfway down the right side of the V.
V bottom patterns are reliable reversal patterns. The safest way to trade this pattern is to trade the breakout. This occurs when the resistance level is broken. Use proper risk management techniques when trading a v bottom pattern.
