What is the Difference Between Double Tops and Double Bottoms?

A trend reversal has begun when a double top or double bottom chart pattern develops.

Let's look at how to recognize and trade these chart patterns.

Double-Sided

A double top is a reversal pattern that appears after a prolonged uptrend.

The “tops” are peaks that occur when the price reaches a level that it can't break.

The price will briefly bounce off this level after touching it, but will then return to test the level again.

If the price rebounds back off that level, you've got a DOUBLE TOP!

After a strong surge up, two peaks or “tops” were established, as shown in the chart above.

Notice how the second top failed to break the first top's high.

This is a strong indication that a reversal is on the way, as it indicates that the buying pressure is nearly exhausted.

Because we are anticipating a reversal of the uptrend, we would put our entry order below the neckline with the double top.

Wow! We must have some sort of psychic ability because we always appear to be correct!

On the chart, you can see that the price has broken through the neckline and is making a strong move lower.

Remember that double tops are a trend reversal pattern, so seek for them after a strong rally has ended.

You'll also observe that the drop and the double top formation are around the same height.

Keep it in mind because it will help you create profit goals.

Bottom with two layers

The double bottom is a trend reversal pattern as well, but we're seeking to go long rather than short this time.

When two valleys or “bottoms” have formed following an extended downturn, these formations occur.

The price developed two valleys after the last downturn because it couldn't go below a particular level, as shown in the chart above.

Take note of how the second bottom failed to considerably break the first.

This is an indication that the selling pressure is going to end and a reversal is on the horizon.

Take a look at that!

The price rose sharply after breaking through the neckline.

Notice how the price increased by nearly the same amount as the double bottom formation？

Remember that double bottoms, like double tops, are trend reversal patterns.

Following a significant decline, keep an eye out for them.