Double Tops and Bottoms chart pattern is the common Forex trading chart pattern used to predict the direction of price movement. This pattern is also called the M/W chart pattern. It is called M/W chart pattern because M appears to be formed in the case of Double Top pattern while W appears to be formed in the case of Double Bottom pattern. Increase and decrease of buying pressures occur in both M and W. It is a reversal chart pattern and many Forex traders and investors rely on this chart pattern because these Double Tops and Bottoms are the most reliable solution in predicting the trend reversals.
Double Tops and Bottoms Forex Chart Pattern Example
Two peaks feature these chart patterns that are located at the same heights or the height of both the peaks is nearly equal. Double Top is formed when price moves in the upward direction to an extended level because of increased buying pressure and then it moves back to the support level because buying pressure has decreased now. This is how the first leg of M formed. Now if the price again bounces back to the extended level from the support level then the Double Tops pattern is formed and this was the second leg of M.
The movement of price in the upward direction to an extended level means the level from which price of the currency cannot easily move downwards or this level is unbreakable. The line that connects the two tops is the resistance level and the point where the price moves in the backward direction acts as the support level. It may take weeks or months for the Double Top pattern to form. It is the most common pattern in Forex Trading. There is an end of the Double Top pattern if the price of the currency goes below the support line. Look at the figure for an example of a Double Top Pattern.
In the figure above, the price level of the First Top and the Second Top on the red line are very close so these two tops forms the Double Top.
This pattern has a twin copy in the downside and this copy is termed as Double Bottom. The formation of the Double Bottom is similar to the Double Top but in opposite direction. Double Bottom is formed when price moves in the downward direction to a level that is not easily breakable and then it moves back to the resistance level. This is how the first leg of W is formed. Now if the price again bounces back to the level equal to or nearly equal to the level of the first drop from the resistance level then the Double Bottom pattern is formed. This Forex pattern is considered over if the price bounces back for one more time to the level equal to or nearly equal to the level of the first drop. Look at the figure for an example of a Double Bottom Pattern.
In the figure above, the price level of both the First Bottom and the Second Bottom are very close. On the red line after the Second Bottom, price of the currency is bounced back for one more and crosses the red line and the price breakout occurs so the Double Bottom Pattern is considered over from this point.
If there is a Double Top pattern formed then place your trades below the neckline because there may be an uptrend and if there is a Double Bottom pattern is formed then place your trades above the neckline.