Forex Trading Basic

How to Trade Double Tops and Double Bottoms

News Trading Strategies

Double Tops and Double Bottoms

Double Top

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!

Double Tops and Double Bottoms

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.

Double Tops and Double Bottoms

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.

Double Bottom

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.

 Double Tops and Double Bottoms

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.

Double Tops and Double Bottoms

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.

READ MORE

Chapter 5

Technical Analysis in Forex Trading

Lesson 1Types of Technical Analysis Indicators
Lesson 2Forex Trading Trendline Analysis
Lesson 3Forex trading Chart Patterns
Lesson 3.2Double Tops and Double Bottoms
Lesson 3.3Head and Shoulders Pattern
Lesson 3.4Rectangle Chart Patterns
Lesson 3.5Triangle Chart Patterns
Lesson 4Japanese candlestick Trading Strategy
Lesson 4.2Japanese candlestick Trading Strategy Part 2
Lesson 5Support and Resistance Levels
Lesson 6Types of Technical Analysis Indicators
Lesson 6.2moving averages Technical Analysis
Lesson 6.3MACD Indicator Technical Analysis
Lesson 6.4RSI Indicator Technical Analysis
Lesson 6.5Stochastics Indicator Technical Analysis
Lesson 6.6Technical Analysis with Bollinger bands Indicator
Lesson 7Fibonacci Retracement Forex Strategy
Lesson 8Forex Trading Pivot Strategies

Go back to Main Page: Forex Trading for Beginners

About the author

Syed Nazim

Syed Nazim is the Marketing Manager of RedMaroon, a Digital Marketing Agency for Financial Institutions. He is also involved with Forexing24.com as a writer and financial Analyst. He is a brilliant marketing geek with vast experience in every sector of Digital Marketing. He likes sharing strategies, tactics and proven methods to help you build a business and live the life of your dreams.

Add Comment

Click here to post a comment

Your email address will not be published. Required fields are marked *


Topics

forexing24-ad-1

forexing24-ad-2

  • analystfx-small.jpg
  • analystfx-small.jpg
  • medium.jpg
  • medium.jpg
  • medium.jpg
  • medium.jpg

Recommended Forex Broker

  • banner-300x250-gif-animation-2.gif