How to Trade With Double Tops
and Bottoms in The Forex Market
Double Tops and Double Bottoms chart patterns help traders identify solid bullish and bearish trend reversals in the Forex market, and in turn, find the ideal market entry and exit points. These charts also enable traders to predict future price movements more accurately and make better trade decisions. In this article, we discuss how you can trade with the Double Tops and Bottoms chart pattern.
What is a Double Tops chart pattern in Forex?
A Double Tops chart pattern is formed when two consecutive steep price increases, also known as tops, are in the Forex market. The first top is formed like an inverted U pattern, followed by the second top that indicates a bearish trend reversal. The double tops formation signals a market sentiment of traders and investors obtaining profits from a bullish trend before the prices start falling.
What is a Double Bottoms chart pattern in Forex?
A Double Bottoms chart pattern is formed with two consecutive steep price falls, also known as bottoms in the Forex market. The first bottom indicates a bullish reversal, followed by another dip in the price that confirms the trend reversal, reversing the market into a bullish trend. Traders generally opt for a long position during a Double Bottoms pattern to benefit from the increasing currency pair prices thereafter.
How to trade the Double Tops and Bottoms chart patterns?
1. Double Tops Chart Pattern
A trader can trade the Double Tops chart pattern by opening a short position and selling currency pairs before prices continuously fall. Since the Double Tops indicate a bearish trend reversal, the traders can make an exit decision well in time as soon as the second top occurs in the market.
Let's take an example with this graph that suggests an overall bullish trend in the Forex market before the currency pair prices reach an extreme top. Let us consider this extreme top position as 1.5, assuming that you are trading USD/EUR. The increasing prices of the USD/EUR currency pair will stop at 1.5 and reverse with a downward momentum, reaching a price point of 1, indicating a trend reversal. However, this trend reversal will only be confirmed after the prices increase for one last time, for a brief moment, to 1.4 and again fall, below the price point of 1 this time. The USD/EUR prices will continue falling here, signalling a bearish trend reversal in the market. As a trader, you can open a short position at the second peak price point to lock in as many profits as possible and avoid potential losses. Exiting the market at the second peak helps traders trade successfully with the Double Tops pattern.
2. Double Bottoms Chart Pattern
A trader can trade the Double Bottoms chart pattern by opening a long position in the market and buying currency pairs before the prices increase continuously. Since the Double Bottoms indicate a bullish trend reversal, the traders can make an entry decision well in time as soon as the second bottom occurs in the market. Let us understand this with an example.
The graph suggests that the USD/EUR prices slowly fall before reaching an extreme dip, also known as the first bottom of 1. The currency pair stops falling at the first bottom and rises for a brief moment to 1.2, where it decides to retrace back to the downward direction, confirming a bullish trend reversal after this point. Reaching back to a price point of 1, USD/EUR prices start rising consistently after the second bottoms. A trader can benefit from the Double Bottoms chart pattern by opening a long position right at the second dip to possibly gain maximum profits as the price starts increasing. Stop-loss orders can also be used in order to protect oneself from falling prices in case the market decides to fall even after the second dip.
How to start trading the Double Tops and Bottoms pattern in four easy steps
1. Decide what you want to trade: You can trade currency pairs or CFDs with the Double Tops and Bottoms pattern by choosing whether you wish to go long or short in a particular position.
3. Identify the pattern: Analyse different Forex chart patterns in different time frames and market situations to identify Double Tops and Bottoms.
4. Understand what affects market reversals: Since the primary objective of the Double Tops and bottoms pattern is to signal market trend reversals, it is important that you read and understand the factors that can lead to a market trend reversal. Overbought/oversold situations, economic uptrends/downtrends, financial news, and more can affect the Forex market trends.
Trade the Double Tops and Bottoms for confirmed trend reversals
The Double Tops and Bottoms can help you identify when the market reversals effectively and make smart trading decisions. The two continued highs or lows in a currency pair's price enable traders to make market entry and exit positions. Trading with Blueberry Markets, you can pinpoint significant market trends through our reliable and transparent trading platform. Sign up for a live trading account or try a risk-free demo account.
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