Double top is one of the most researched and used forex pattern that you can find in your chart. Its simplicity makes it easy to find it and leaves a little room for hesitation. This forex pattern signalises that the attempt to continue in uptrend failed, therefore reversal becomes more likely.
Double top signalises reversal of current price movement. It can be used at the top of the uptrend to recognise its reversal, or at the end of the downward correction for long entry timing.
About double top forex pattern
Double top pattern: New high is created as the price moves upwards. New high created resistance in upward price movement. Price declines temporarily to create low (support) only to rise again and test previous resistance.
Strong enough resistance will bounce the price downwards again, to break support (neckline) and finish the double top chart pattern in forex.
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Trading double top pattern
During the second peak price does not need to touch previous resistance zone for pattern to be valid. It is necessary to realise that resistance is a wider price zone. We enter the short trade only after formation completion – price falls below support (neckline).
We enter the trade at support breakout candle – first candle to close below neckline. We use standard rules for breakout validation, because fakeout is also possible.
Second top should not surpass the price level reached in previous top. It is also beneficial to read candle formation in second top.
They should show overall weakness approaching previous high, with flat candle bodies ant tall upwards wicks. ZigZag forex indicator and fractals forex indicator, can be both used to properly identify tops and bottoms.
As with other forex patterns, double top only heightens probability of successful short trade. It is far from 100 percent accurate method. Other methods and tools such as trendlines drawing, forex indicators (RSI, Bollinger Bands, Envelopes) can be used to improve success rate of double top pattern signal. It is also recommended to observe volume on support breakout, for trade confirmation.
Double bottom forex pattern
Mirror opposite of double top pattern. It often marks the end of current down move. Massive double bottom found in the bottom of downtrend may signalise its reversal. Double bottoms found in raging uptrend often signalises end of bearish correction and continuation of uptrend. It closely reminds W letter (while double top reminds M letter).
About Double bottom forex pattern
Price moves downwards creating new low at the support. Bulls manage to push the price upwards a little to reach resistance. Bears respond immediately, pushing price downwards, but only to barely reach previous low on support. At this already low price they are finally overpowered by bulls pushing the price upwards past previous resistance (neckline), to confirm double bottom pattern and more traders to jump in the long trade.
Trading forex double bottom pattern
We wait for pattern confirmation by breakout candle closing above neckline (resistance). We enter long position.
It is recommended to use another forex tools to confirm this forex pattern. Forex indicators such as RSI, Stochastic, MACD can be used to confirm overbought oversold zones. Trendlines can be used to find confluences in trendlines, which can add tremendous value to signal reliability.
For example: Double bottom found on historical support are is fantastic long entry signal.
Same trading rules as with double tops can by applied also on double bottoms.