V bottom patterns are a bullish pattern that look like the name that they are called. Price moves up to a peak level and then starts to pull back or fall rapidly. Once price has found a base, it makes a sharp pointed reversal to the upside. Then, price goes back up to the 1st peak level. Look for breakout at top of v to confirm continuation. Watch our video on how to identify and trade v bottom patterns.
What Is a V Bottom Pattern & How to Identify These Patterns?
A v bottom pattern consists of several consolidation candlesticks that form a v pattern. This pattern looks like the cup and handle pattern without the handle. And the shape is a v instead of a u. Watch if price can move to the top of the v then breakout, hold, then continue upwards.
These patterns are known as reversal patterns. This pattern gets their name because of the shape that they form on stock charts. This pattern is pretty common on all time frames. Watch our video above to learn more. You could think it’s a cup and handle pattern but the bottom is too sharp. The cup and handle forms a U whereas these bottoms have moves sharp enough to form the V.
Japanese candlesticks patterns make up the charts we read. Being able to know what bullish candlesticks, bearish candlesticks and doji candlesticks mean is probably the most important aspect of trading.
Read our post on how to read stock charts for beginners if you need more information on how to read a chart.
Basics of V Bottom Patterns
V bottom patterns form when price creates the V shape at a support level. Price falls sharply then reverses. and the breakout occurs when resistance is broken. The resistance level is the top of each side of the pattern.
The stock market is a war between buyers (bulls) and sellers (bears). The V shows that tug of war. The bears are in control causing the stock to fall. Once it hits support the bulls come in and drive the price back up. As we’ve stated before, it’s important to know what candlesticks mean. If you’re looking at the charts, you may see hammer candlesticks hammering out the base/support before the reversal. Sometimes the gap up patterns are apart of V shape (bookmark our day trade watch list page).
The beginning of V consolidation patterns and the end of the V pattern are pretty level. This forms a pretty strong resistance level. This level must be broken for the stock to continue up.
The bottom of the pattern is a strong support level. Once the stock touches that level it usually shoots back up.
Traders who go long like to buy at support and sell at resistance in order to cash in on profits. If you were shorting, you’d buy at resistance and sell once it hits support.
When a stock hits support and can tend to bounce back up instead of breaking and continuing the fall. This is why it’s important to know what the markets are doing. Stocks will follow what the S&P and DOW Jones are trading.
If the markets are bearish, 9 times out of 10 stocks will be bearish as well. That’s why having a broker that allows shorting is a good thing. If your broker doesn’t then you can’t buy and sell put options.
Read our post on options trading strategies for beginners to learn more about trading puts and our Interactive Brokers review to learn about a good shorting broker.
Patterns Within Patterns
V patterns can be inside other patterns. Cup and handle patterns are very similar looking to the V. While the cup and handle has the more rounded bottom forming the U, it still means the same thing.
Price is about to reverse. You may see what looks like a handle next to the V. This is consolidation or a pullback before another move.
These consolidation patterns can also be a part of an inverse head and shoulders pattern. The V formation creates the head and shoulders with resistance forming the neckline.
It is important to remember that patterns break down all the time. That’s why being able to spot patterns within patterns is important.
Knowing what patterns mean are equally important. A pattern could be seen a couple different ways. Patterns that look similar are usually signaling the same thing.
Study and know what the patterns are telling you and try not to get caught up in exactly what each pattern looks like.Download our candlesticks charts free e-book. Take our candlesticks patterns course.
How to Trade V Bottom Patterns
- How to trade V bottom patterns:
- Watch for V consolidation that ends up forming the V pattern.
- Watch for price to move up to resistance at top of the V formation.
- Next, look for price to break out of the top of V formation.
- Then, watch if price can hold the top of the V.
- Traders take a long position once the top of the V breaks and holds. Place stop halfway down right side of the V.
V bottom patterns are pretty reliable reversal patterns. The safest way to trade this pattern is to trade the breakout. This occurs when the resistance level is broken.
You can trade the moves the pattern is making as it forms as well. Just remember to keep your risk management in place. The moves up and down can make for great gains both long and short. Since this pattern occurs on all time frames you can use it with penny stock trading strategies as well as day trading, swing trading and options trading.