Double top and double bottom are both trend reversal patterns. The double top is English letter “M” shaped, and the double bottom is “W” shaped. Professional traders use these 2 chart patterns to identify market reversal points and take trades from these zones.
Double Top
When a price hits a certain level, what can not be broken is the peak point. In terms of trading language, this point is “top.” When prices reach these levels, the price will bounce off from these levels a bit. Then for the second time price returns to that same level again.
If the price bounces off from that same level for the second time, then you get the double top.
What does the picture tells you? after a strong buy move, you get 2 tops—one after another. Just take a look. Does the second top break the first top’s high? This means that a robust bearish reversal is about to happen soon.
Double Bottom
Your search for the sell opportunities in the double top, but in the double bottom pattern, you need to search for buy opportunities. This is a bullish reversal pattern. After, there was a strong downtrend when 2 valleys formed that were double bottom.
After a downtrend, the price formed 2 valleys. Price failed to break a certain level and go beyond that level. Look how the second bottom failed to break the first bottom’s low.
What does this scenario tell you? It tells that the bears’ pressure has finished, and a new uptrend is about to happen.
Trading strategy using Double Top And Double Bottom Pattern
How to Sell at Double Top chart pattern
There is a double top that does not necessarily mean that there is a sell trade. Never ever trade, only finding a double top pattern. Because often you find that price comes a bit to your direction but then starts to rise again. So be careful about this. Don’t fool my market tricks. Always wait for the price to break the neckline. I am giving you a live example so you can understand better.
Look at the chart. Price breaks the neckline sharply. And then the price starts t fall like mad! as the double top is a reversal pattern, you always need to find these patterns after a strong buy move. After the buyers lose their strength, sellers will dominate the market. But to avoid too many fake signals, you will not enter the sell trade until you get to notice the neckline is broken strongly.
How to buy at Double Bottom pattern
Only buy a double bottom pattern when the neckline breaks and breaks sharply. If you buy just after seeing the double bottom pattern, then you will be fooled many times by the big boys of the market. There is a double bottom pattern does not mean there is a trade. Always wait for the neckline break.
Check the picture. First, price breaks the neckline. Then you open the buy trade. You are on the safe side. See how far the price goes in the buying mood. If you would take the trade, how many pips could you pocket? In this single trade, you would get more than 1:3! Yes, it is possible to get even more than 1:3 if you trade using a double-bottom pattern.
Limitations of Double Top And Double Bottom Pattern
- Double top and double bottom patterns are very effective and profitable if you catch the trades from the right place. So if you enter the market from the wrong place, then these patterns will not produce profit for you.
- You will get many false signals in the double top and double patterns.
- Impatient and greedy traders cannot trade using these patterns because they won’t wait for a neckline break. They will take trades just after seeing the pattern.
- The Double tops need strong bullish movements on their left side to become the perfect double top patterns. Suppose there is no bullish move on the left side, then don’t open trade. That is not a valid double-top pattern.
- For a double bottom to become a perfect double bottom pattern, it must have a strong bearish movement on its left side. Suppose there is no bearish move on its left side, then don’t open trade. That is not a valid double-bottom pattern.
- The neckline is integral to the double top and double bottom pattern. If you ignore the neckline part, your pattern is not 100% correct!
