Forex technical analysis: double top and double bottom patterns.
The double top is a kind of reversal pattern, and the formation of the double top is announced after the second top of the price appears. The top is the high point of the price in a period of time. When the price touches a certain level, but it is difficult to break through the level, it may form a top.
When the price hits this resistance level, the price will retrace slightly, but then rebound again to test the resistance level. If the price falls again from the level near this level, then we may see the formation of a double top pattern!
In the chart above, you can see that the price formed two peaks or double tops after going through a strong upswing.
Note that the second top is difficult to break through the high of the first top. This is a strong reversal signal, it indicates that the reversal market is about to appear, because it tells us that buying pressure is about to end.
With the formation of a double top pattern, we can set our own stop entry order below the neckline, because we expect a reversal in the rising market.
Wow! We should be wizards, right, otherwise, why are our judgments always right?
As shown in the figure, you can see that the price fell below the neckline and there was a perfect decline. Remember, the double top pattern is a type of reversal pattern, so after experiencing a strong upswing, you will look for opportunities to form this pattern.
You will also find that the price drop after breaking below the neckline is consistent with the height of the double top. Please keep this in mind, because it helps us set profit targets.
Double bottom patterns
The double bottom is also a type of trend reversal pattern, but this time we will choose to go long rather than short. This pattern appears after the second price drop, at which time two “valleys” or bottoms have formed.
As you can see from the chart above, after experiencing the previous decline, the price formed two troughs, because it is difficult for the price to fall below a certain level.
Note that it is difficult for the second bottom to fall significantly below the first bottom. This signal indicates that the selling pressure is about to end and the reversal market is about to start.
Did you see it?
The price broke through the neckline and went out of the beautiful upward trend.
Note that the price increase is almost the same as the double bottom.
Remember, like the double top, the double bottom pattern is also a trend reversal pattern. You will see this pattern appear after a strong decline.