How To Trade Double Top And Double Bottom On Forex

Double top and double bottom are reversal chart patterns. If we see double top after an up trend/ bullish market, it means that the bull market is losing power. And vice versa, if we see double bottom after a down trend or bearish market , it means that the bear market is losing power and ready to reverse. These patterns are my favorite pattern, it is very easy to trade. Double top and double bottom are also very popular among forex and stocks traders.

Important Part Of Double Top And Bottom

Double Top Chart Pattern

They appears with two peaks/ tops separated by a valley after a significant up trend/bullish. If you see this on your chart, then you can draw the neckline. If the neckline penetrated then the reversal confirmed. The formations looks like an “M” formation. The two peaks/tops may have the same high but that is not always. Below is the trading example.

The above example is EURO / USD on 1 hour chart time frame. The blue line is telling us the up trend/bullish market. And then you can see the first top and second top with valley in the middle of it. From the valley pick up the lowest point as the neckline. As we can see with the yellow check mark is when the price penetrated the neckline.

You can Open Sell bellow the neckline with a short stop order, or you can open short after the candle close. Above example does not show us any retrace to the neckline after the breach. Sometimes we will see a retrace to the neckline on these chart patterns. Again from the example above, if we calculate the range between the neckline and the last or second top is 90 pips range. 90 pips is the reasonable target profit point.

You can put your stop-loss 10 pips above the last top, that means your stop-loss is 100 pips away. If you put your stop-loss at 100 pips then 100 pips target profit is a reasonable target, it is 1:1 Profit and Loss ratio. On the above example the price went down for about 188 pips. Not Bad…

Double Bottom Chart Pattern

It is the opposite of double top, its look like a “W” pattern. They occurs after a significant down trend/bearish market. The first and the second bottom may have the same price level but not always. Don’t forget to draw a neckline, if the price penetrated the neckline, the reversal possibility to an up trend is high. Below is the example.

The picture above is Euro/USD on 15 minutes time frame. You can find these chart patterns on any time frame. As an example above after a significant down trend marked with a blue line then we can see the first and second bottom. The neckline drawn by a red line. You may put your long stop order 5 pips above the neckline for 15 minutes TF.

We can see by the example above that the price did make a bounce back to the neckline. It is a good timing too to put your long trade. The range between the neckline and the last bottom is 39 pips. Finally, put your stop-loss point 5 pips below the last bottom. As we can see the price move up with 80 pips high from the neckline. If we calculate this trade, the stop-loss is 39 pips + 5 pips = 44 pips and the upward move is 80 pips. Not so bad for the profit and loss ratio isn’t it? That is why i love double top and double bottom chart patterns so much, it is easy but highly profitable.