Reversal Setups

These reversal patterns are formed after the forex market has had an extended move up or down and the forex price reaches and gets to a strong and major resistance level or support level respectively.

When forex price gets to such a point it begins to form a pattern. Since these formations are frequently formed it is easy to spot and identify them once you learn how & start using them. There are four types of reversal patterns:

• Double Tops
• Double Bottom
• Head and Shoulders
• Reverse Head and Shoulders

This reversal chart patterns tutorial will only cover double tops and bottoms reversal chart patterns, for the other 2, read this other reversal chart patterns tutorial: head and shoulders & reverse head and shoulders reversal patterns explained

Double Top - Forex Double Tops Setup

Double Tops chart Pattern is a reversal setup which forms after an extended uptrend. As its name implies, this double tops chart pattern formation is made up of two consecutive peaks that are roughly equal, with a moderate trough in between.

This double tops setup setup formation is considered complete once forex price makes the second peak & then penetrates lowest point between the highs, called the neck-line. The forex sell signal from this double top formation occurs when the market breaks-out below the neck line.

In Forex, this double tops setup setup formation is used as an early warning signal that the bullish market trend is about to turn & reverse. However, it's only confirmed once the neck-line is broken and the market crosses below neck-line. Neck line is just another name for last support level formed on the chart.

Summary of Double Tops Setup:

• Double top pattern formation forms after an extended move upwards
• This double tops chart pattern indicates that there will be a reversal in the market trend
• We sell when price breaks below the neckline: see below for an explanation.

The double tops chart pattern look like an M-Shape, the best reversal signal for a double tops chart pattern is where the second top is lower and lesser than the first top like is shown below, this means that the double tops reversal setup can be confirmed by drawing a downward trend-line just as illustrated below. If a fx trader opens a sell trade signal the stop loss order will be placed just above this downward trend line.

M-Shaped Double Bottoms Reversal Chart Setup Patterns

Double Bottoms

Double bottom pattern is a reversal setup which forms after an extended forex downtrend. Double bottoms trading pattern is made up of 2 consecutive troughs that are roughly equal, with a moderate peak in between.

This double bottom setup is considered complete once the price makes and forms second low and then penetrates the highest point between the lows, called the neckline. The buy indication from this market bottoming out signal forms when the market breaks-out the neckline to the up-side.

In FX trading, this double bottom setup is an early warning signal that the bearish market trend is about to turn and reverse. It's only considered complete/completed once the neckline is broken. In this double bottom chart pattern setup formation the neck-line is the resistance level for the forex price. Once this resistance level is broken the market will move up.

Summary of Double Bottoms Setup:

• Double bottoms pattern setup forms after an extended move downwards
• This double bottoms chart pattern shows that there will be a reversal in the market trend
• We buy when the price breaks above the neck-line point: see below for an explanation.

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

W-Shaped Double Bottoms Reversal Chart Setups

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