Forex Chart Formation Patterns_1. Forex Double Top and Double Bottom Formation patterns

Lesson 1: Forex Double Top and Double Bottom
Formation patterns

When there is a strong force in the upward direction, a bearish reversal forms
- known as Double Top. It appears as two consecutive peaks with approximately
the same highs. Generally, the first peak is a part of an up-trend and it creates a new
high.

After facing resistance, the price pulls back to create a support level called
the neckline. Next, the price moves back towards the resistance set by the first peak
and after failing to break it, drops to the neckline again

This pattern illustrates clearly the relationship between the bulls and the
bears. The price has been in an up-trend. It creates a new high.

As the bulls run out of steam, the market goes into the consolidation phase
and pulls back a bit. Then the bulls try to push the price to new highs but they fail as
the bears gain control and start to drive down the price.

Make a note of this pattern - it is valid only when the price has broken the
neckline. Why? Because in most similar situations, the price is just consolidating
before the up-trend resumes and takes the price to new highs.

So when do you enter the market? Well, there are two basic strategies:
aggressive traders sell immediately after the price has broken the neckline whilst
conservative traders wait for the price to rise back to the neckline - and only then do
they sell.

So when to take a profit? The best thing about formation patterns is that
they are easy to set price-targets by. Just measure the height of formation; so, that
would be the number of pips from the neckline to the peak - then set your target by
the same number of pips starting from the neckline to the downside.

Double Bottom
This pattern is the opposite of Double Top and it’s formed when there’s a

strong drop - or - signals that denote a reversal of bulls. Double Bottom is the exact
opposite pattern. It forms after a strong down move and signals bullish reversal.

It consists of two price bottoms of roughly the same lows - and a neckline
acting as resistance. The behavior is similar during bearish movement as well. The
pattern is only valid when the price has broken the neckline - and we should target
the height of the formation.