Double Tops and Double Bottoms
A reversal pattern that is formed after there is an extended move up is called the double top pattern. The “tops” are peaks which are formed when the price hits a certain level that can’t be broken.
After touching this level, the price will bounce off it slightly, but then return back to test the level again. If the price bounces off of that level again, then you have a DOUBLE top!
From chart above you can see that two peaks or “tops” were formed after a strong move up.
We can easily Notice how the second top was not able to break the high of the first top. This is a strong sign that a reversal is going to occur because it is telling us that the buying pressure is just about finished.
By using the double top, we would place our entry order below the neckline because we are anticipating a reversal of the uptrend.
We must be psychic or something because we are always seem to be right!
From the above chart you can see that the price breaks the neckline and makes a nice move down. Remember that double tops are a trend reversal formation so you’ll want to look for these after there is a strong uptrend.
You can notice that the drop is approximately the same height as the double top formation. Keep that in mind because that’ll be useful in setting profit targets.
This trend is also a trend of reversal formation, but this time we are looking to go long instead of short. These formations occur after extended downtrends when two valleys or “bottoms” have been formed.
As you can see from the chart above that after the previous downtrend, the price formed two valleys because it wasn’t able to go below a certain level.
Look carefully how the second bottom wasn’t able to significantly break the first bottom. This is a sign that the selling pressure is about finished, and that a reversal is about to occur.
Wow look at that!
The price made a nice move up and broke the neckline.
Can you see how the price jumped by almost the same height as that of the double bottom formation?
You should remember that just like double tops, double bottoms are also trend reversal formations. You’ll want to look for these after a strong downtrend.
Please note that: Successful Technical Analysis largely depends on the functionalities of the MT4 Platform provided by your broker. If you are new in forex trading, you might consider reading the article on what is the best trading platform, Introduction to MT4 Platform and MT4 Platform functions. We have used a fully functional MT4 platform provided by HYCM Broker. Read why their MT4 platform has better trading conditions from the HYCM Broker review.
Technical Analysis in Forex Trading
|Lesson 1||Types of Technical Analysis Indicators|
|Lesson 2||Forex Trading Trendline Analysis|
|Lesson 3||Forex trading Chart Patterns|
|Lesson 3.2||Double Tops and Double Bottoms|
|Lesson 3.3||Head and Shoulders Pattern|
|Lesson 3.4||Rectangle Chart Patterns|
|Lesson 3.5||Triangle Chart Patterns|
|Lesson 4||Japanese candlestick Trading Strategy|
|Lesson 4.2||Japanese candlestick Trading Strategy Part 2|
|Lesson 5||Support and Resistance Levels|
|Lesson 6||Types of Technical Analysis Indicators|
|Lesson 6.2||moving averages Technical Analysis|
|Lesson 6.3||MACD Indicator Technical Analysis|
|Lesson 6.4||RSI Indicator Technical Analysis|
|Lesson 6.5||Stochastics Indicator Technical Analysis|
|Lesson 6.6||Technical Analysis with Bollinger bands Indicator|
|Lesson 7||Fibonacci Retracement Forex Strategy|
|Lesson 8||Forex Trading Pivot Strategies|