Updated on March 20, 2023
The bottom reversal pattern indicates a potential change in trend from a downward trend to an upward trend. This pattern occurs when a stock or other financial instrument reaches a new low but subsequently rallies and closes above its previous low thereby creating a pattern of higher lows.
When is a bottom reversal considered a bullish signal?
A bottom reversal is considered a bullish signal as the selling pressure that was driving the downward trend has dissipated and buyers are now entering the market. Traders and investors then look for bottom reversal patterns to identify potential buying opportunities. They can use various technical analysis tools and indicators, (like moving averages and momentum oscillators). This is used to confirm the reversal and increase their confidence in a trade.