Reversal Patterns Double Top and Double Bottoms Patterns

Reversal patterns form after a big move up or down. Price hits a key resistance or support level.

When price reaches such a point it starts to form a pattern setup formation - reversal chart pattern. Since these patterns are frequently shaped and formed it is easy to identify them once you learn how & begin using them.

There are 4 types of reversal patterns:

• Double Top
• Double Bottoms
• Head and shoulders
• Reverse Head & shoulders

This guide will focus only on double tops and double bottom chart shapes: the other two will be discussed in the next guide: head and shoulders and reverse head and shoulders shape.

Double Tops - Reversal Setup

This double tops chart pattern is a reversal chart pattern that forms after an extended upward market trend. As its name implies, this setup is made up of 2 consecutive peaks that are roughly equal, with a moderate trough in between.

This double top is seen as complete when the price creates a second high point and then goes below the lowest spot between the high points, known as the neck line. The sell signal from this chart pattern happens when the market goes below the neck line.

In XAUUSD trading, this setup serves as an early warning signal indicating that a bullish Gold price trend may be about to reverse. However, confirmation occurs only when the neckline is breached and the market falls below this level. The neckline is simply another term for the last support level established on the Gold price chart.

Summary:Forms after an extended move upwards

This setup reflects that there will be a reversal in the market

We initiate a sell when the price breaks below the neckline: refer below for further explanation.

Double Tops Reversal Setup

The double top reversal chart pattern resembles an M-Shape: the optimal reversal signal occurs when the second top is lower than the first, as illustrated below. This indicates that the reversal signal setup can be validated by drawing a downward trend line, as depicted below. If a trader initiates a sell trade, the stop loss should be positioned just above this downward trend line.

M-Shaped Double Tops Reversal Pattern - Downwards Trend-Line

Double Bottoms - Reversal Pattern

Double bottoms show up after a long slide down in price. You'll spot two low points, about the same level, with a bounce in between. It's a sign the trend might be turning.

This double bottoms reversal setup is regarded complete once price makes the second low and then penetrates highest point between the lows, called the neck line. The buy indication from this bottoming out signal occurs and happens when the market breaks the neck-line to the up-side.

In Gold trading, this setup is an early signal that the bearish Gold market trend is about to turn and reverse. It is only considered complete/confirmed once the neck line is broken to the upside. In this setup the neck-line is the resistance zone for the price. Once this resistance is breached and broken the market will move upward.

Summary:Forms after an extended move downwards

This pattern reflects that there will be a reversal in the market

We buy when price breaks above the neck-line: see below for an explanation.

Double Bottoms Reversal Pattern

The double bottoms setup looks like a W-Shape, the best reversal signal is where the second bottom is higher than the first one just as shown below, this means the reversal signal setup can be confirmed by drawing an upwards trend-line like is shown below. If a gold trader opens a buy trade position the stop loss will be placed just below this upwards trend-line.

W-Shaped Double Bottoms Reversal Pattern - Upward Trend-Line

Learn More Lessons & Tutorials:

• Position Size Calculator Leverage
• How Do You Find MetaTrader 4 HangSeng50 Indices Chart?
• AEX 25 in MT4 Index AEX 25 Symbol on the MT4 Software Platform
• Setting Up Commodity Channel Index, CCI EA(Expert Advisor)
• EU50 Index Strategy
• What's SILVER Silver Spreads?