Double Top Double Bottom

Double tops/double bottoms fall into the reversal patterns category and are closely monitored by traders. Let’s say you are bullish on a pair and price just keeps falling. However, you are bullish based on your fundamental analysis or your technical analysis on a higher time frame. So you are looking for clues price might turn, hence you are looking for reversal patterns. Double tops and bottoms are considered to be reversal patterns, that is price reverses previous trend and is set to start a new trend in the opposite direction. A double bottom takes the shape of a big W and a double top of a big M. The minimum objective for a double top is the height from the top projected downward from the breakdown point. Opposite for the double bottom pattern, as it is a mirror image fo the double top.

One thing to keep in mind is that a return move (re-test) to the breakout point is more common at double bottoms than double tops.

Depending on the time frame the pattern is forming, it can be traded both on an intra-day basis as on a medium/long term basis, as these patterns come with a measured move, meaning there is a target associated with their shape. Examples of double tops and bottoms can be found on the recording associated with this sub-chapter and also techniques for how to properly draw the measured move. As a rule of thumb, the higher the time frame, the powerful the reversal pattern, so such a pattern on monthly or a weekly chart should be treated with more respect than one on the 5 min chart or 1h chart.

From my experience when you have a double top or double bottom formation and the top or bottom is by the pip, meaning the values are exactly the same, this is a sign the pattern would not hold and probably it would be broken. Reason for that is currency markets are a stop loss driven markets most of the time and it is not uncommon for price trying to take a level, only to reverse sharply after the level being broken. So look more for the area signaled by the double top or bottom formation than at the exact level it appears.

Into the same category falls triple tops and bottoms, but they are not gonna be treated in this trading manual for the simple reason triple tops/bottoms rarely hold.

Book recommendation: Book recommendation: Martin J. Pring, “Techcnial Analysis Explained”, Feb 20, 2002