Forex trading is one of the most rapidly developing financial markets in today’s world. This type of trading has attracted many people around the world. There are different types of chart formations in Forex trading that a Forex trader should know to get success in Forex market. The chart formations help a lot to predict the price movement of a particular currency and to gain profit from the market. Here, we will discuss about two such chart patterns namely the Double Top and Double Bottom Chart Patterns.
The Double Top chart is a reversal Forex chart pattern. The formation of this chart is created when an extended price moves upwards. There are two peaks in this formation that are considered the two main features of Double Top chart pattern. The two peaks are also know as two tops and are located almost equally at the same height. When the price reaches a level that cannot be broken, the double top pattern forms. Here, once the price reaches the point of its resistance, it bounces back to the level of support and then again goes back to the unbreakable level. However, the double top formation is still not made, as the price has to bounce off that level for the second time to complete the formation. At this point only, the two peaks of price movement can be seen.
There is a line in double top chart pattern connecting to two tops. The line remains at resistance level and another line is there at the support level. This line is drawn based on the point from which the price of the currency goes up for the second time. If the price drops under the support line, the double top pattern is considered over. In Forex trading, the double top formation never forms within seconds or in minutes; it may take weeks to be formed. This is considered the most common pattern in Forex trading.
The upside down copy of the double top chart pattern is known as the Double Bottom Chart Pattern in Forex trading. The double bottom pattern usually forms when the price of a currency drops, then climbs back, then drops for the second time and then finishes off by another rebound. Here, the second drop in price is equal or almost equal to the level of the first drop.
Now, if you are confused about what to do when these formations appear, here are some suggestions. If the double top pattern appears, you should place the trade orders below the neckline, as there is a possibility of a turnaround of the uptrend. On the other hand, you should place trade orders above the neckline in case the double bottom pattern appears
