Double top and double bottom pattern

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Double top and  double bottom patterns are  a reversal patterns that are found or formed at the end of an uptrend or downtrend and signal the end of the trend.

There are two types of these patterns:double top pattern and double bottom pattern

Double top pattern 

A double top is a bearish reversal pattern that is formed at the top on an up trend and it indicates a downtrend movement or the end of an uptrend.

This pattern has 2 tops at about the same level.

The first top is formed when the market price rise up to hit  a certain level, then reverse in the opposite direction until it hit a certain level again where it can’t continue to go down. That level is called a necklice.

From the neckline, the price retrace back up to re-test the same level again, but price fail to break the level again, from then price drop

Note: this pattern is not complete until the price drops and break the neckline.

Here is an example of what double top looks likedouble top  pattern

 

Notice this pattern is similar to that of  the head and shoulders pattern, except this pattern has only 2 peaks instead of 3 peaks ( 2 shoulders with no head)

how to trade double top pattern?

Wait for the neckline to be broken – the price must break and close below the neckline.

When that happens, place a sell trade.

Stop loss- place your stop loss above the candlestick that breaks and close below the neckline.

for take profit target- Calculate the distance in pips between the neckline and the top.

Or you can use the previous swing low as your take profit target.

See the example on the chart double top pattern

 

DOUBLE BOTTOM PATTERN

Everything you just read about double top pattern is the opposite of the double bottom.

A double bottom is a bullish reversal pattern that is formed at the bottom on a down trend and it indicates the end of an downtrend.

This pattern has 2 bottoms at about the same level.

The first bottom is formed when the market price fall down to  a certain level, then reverse in the opposite direction until it hit a certain level again where it can’t continue to go up. That level is called a necklice.

From the neckline, the price retrace back down to re-test the same level again, but price fail to break the level again. From there, price go up.

Again, this pattern is not complete until the price break the neckline.

Here is how a double bottom looks like.

double top pattern

How to trade this pattern?

If you can trade a double top, you can trade this pattern too. Let’s see how.

Wait for the neckline to be broken- the price must break and close above the neckline.

Once that happen, place a buy trade.

Stop loss- put your stop loss few pips below the candlestick that breaks and close above the neckline.

Take profit target – Calculate the distance in pips between the neckline and the double bottom

See the example below.

 double top pattern

There you have it. I am sure now you know how to spot these two patterns and also how to trade them.

Don’t forget to share with other traders, and if you have any questions about these patterns or anything, the comment box bellow is made for you. Let’s keep in touch.

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