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Forex For Beginners

Double Top

The double top pattern is a major reversal pattern that is formed after an extended up trend. The double top pattern is made up of two consecutive peaks that are almost equal. Sometime, we called it an "M" formation because of the pattern it creates on the chart.

The double top is one of the most frequently seen and common chart patterns, because they are so easy to be identified. Double top is a strong sign that signaling a reversal is going to occur and the buying pressure is just about finished.

To identify the double top pattern :-

1. The two tops should be distinct and sharp.

2. The double top pattern will only complete when prices decline below the lowest low in the formation with good trading volume. The lowest low is called the confirmation point.

3. we should place our entry order below the confirmation point, because we are anticipating a reversal of the up trend.

Double Bottom

Double bottom pattern is also a major trend reversal formations, but this time it forms a "w" formation. This formation occur after extended downtrends when two valleys or “bottoms” have been formed.

You can see from the chart on the left, after the previous downtrend, the price formed two valleys because it was not able to go below a support Line. This is a strong sign signaling that the selling pressure is about finished, and that a reversal is about to occur.

Likewise, the double bottom pattern will only complete when prices broke the resistance line with good trading volume.

In this situation, we will place an entry order above the resistance level.