Reversal Patterns Double Tops and Double Bottoms Patterns

Reversal chart patterns are formed after the market has had an extended move up or down & the price reaches a strong resistance level or support level respectively.

When price reaches such a point it starts to form a chart pattern - reversal chart pattern. Since these formations are frequently formed it is easy to spot them once you learn how & begin using them.

There are four types of reversal patterns:

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

This tutorial will only cover double tops & double bottoms chart patterns, the other 2 will be covered in the next tutorial: head & shoulders and reverse head & shoulders chart pattern.

Double Tops - Reversal Pattern

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

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

In XAUUSD trading, this formation is used as an early warning signal that a bullish Gold price trend is about to reverse. However, it is only confirmed once the neck-line is broken & the market moves below the neck-line. Neckline is just another name for the last support level formed on the Gold price chart.

Summary:Forms after an extended move upwards

This formation indicates that there will be a reversal in the market

We sell when the price breaks out below the neck-line: see below for explanation.

Double Tops Reversal Pattern

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

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

Double Bottoms - Reversal Chart Pattern

Double bottoms is a reversal pattern that forms after an extended downwards trend. It is made up of two consecutive troughs that are roughly equal, with a moderate peak in between.

This double bottom reversal chart pattern is considered complete once price makes the second low & then penetrates the highest point between the lows, called the neck-line. The buy indication from this bottoming out signal occurs when the market breaks the neck line to the upside.

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

Summary:Forms after an extended move downwards

This formation indicates that there will be a reversal in the market

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

Double Bottoms Reversal Chart Pattern

The double bottoms pattern looks like a W-Shape, the best 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 illustrated below. If a trader opens a buy trade the stop loss will be placed just below this upwards trendline.

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