Reversal Chart Patterns
These reversal forex trading patterns are formed after the forex market has had an extended move up or down and the forex price reaches a strong resistance level or support level respectively.
When forex price reaches such a point it starts to form a pattern. Since these formations are frequently formed it is easy to spot and identify them once you learn how and start using them. There are four types of forex reversal patterns:
- Double Tops
- Double Bottoms
- Head and Shoulders
- Reverse Head and Shoulders
This reversal chart patterns tutorial will only cover double tops and bottoms reversal forex chart patterns, for the other 2, read this other reversal chart patterns tutorial: head & shoulders and reverse head & shoulders forex reversal patterns explained
Double Tops - Forex Double Tops Chart Pattern
Double Tops forex chart Pattern is a reversal pattern that 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 chart pattern formation is considered complete once forex price makes the second peak and then penetrates the lowest point between the highs, called the neckline. The forex sell signal from this double tops formation occurs when the market breaks below the neckline.
In Forex, this double tops chart pattern formation is used as a early warning signal that a bullish Forex trend is about to reverse. However, it is only confirmed once the neckline is broken and the market moves below the neckline. Neckline is just another name for the last support level formed on the Forex chart.
Summary of Double Tops Chart Pattern:
- Double tops pattern 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 explanation.
The double tops forex chart pattern look like an M-Shape, the best reversal signal for a double tops chart pattern is where the second top is lower than the first one as shown below, this means that the double tops reversal pattern can be confirmed by drawing a downward trend line as shown below. If a trader opens a forex sell signal the stop loss order will be placed just above this downward forex trend line.
M-Shaped Double Bottoms Forex Reversal Chart Patterns
Double bottoms chart pattern is a reversal pattern that forms after an extended forex downtrend. Double bottoms forex chart pattern is made up of two consecutive troughs that are roughly equal, with a moderate peak in between.
This double bottoms formation is considered complete once price makes the second low and then penetrates the highest point between the lows, called the neckline. The buy indication from this market bottoming out signal occurs when the market breaks the neckline to the upside.
In Forex trading, this double bottoms formation is an early warning signal that the bearish Forex trend is about to reverse. It is only considered complete/confirmed once the neckline is broken. In this double bottom forex chart pattern formation the neckline is the resistance level for the forex price. Once this resistance level is broken the market will move up.
Summary of Double Bottoms Chart Pattern:
- Double bottoms pattern forms after an extended move downwards
- This double bottoms chart pattern indicates that there will be a reversal in the market trend
- We buy when forex price breaks above the neckline; see below for explanation.
The double bottoms chart pattern look like a W-Shape, the best double bottoms reversal signal is where the second bottom is higher than the first one as shown below, this means that the reversal signal can be confirmed by drawing an upward trend line as shown below. If a trader opens a forex buy signal the stop loss order will be placed just below this upward trend line.
W-Shaped Double Bottoms Forex Reversal Chart Patterns