There are a lot of ways to know whether a trend reversal already happened or not. Here is a clue: double bottoms or double tops suddenly appeared. Today, we will get an idea about these chart patterns, how they work, and trading with them.
Let us start with the double tops.
A double top tells us that a trend reversal already took place after a prolonged move up. As the term double tops’ suggests, it has tops that appear upon the price, hitting an unbreakable level forms. Here is what the price will do after hitting that level: it will go back again to test that level.
It would be a double top if that price made another bounce from that level where you can see two peaks that formed after a robust move up. If you see a double top in your chart, observe the tops. If the second top could not surpass higher than the first top, then it means that this is a vital trend reversal sign. You might want to get ready for an incoming reversal because, in a way, it is telling you that the buying pressure is near the end.
Assuming that there is a double top, it might be best to make an entry order below the neckline as we expect the uptrend’s upcoming reversal. It is important to remember to find these double tops after a strong uptrend if you want to know when there might be a trend reversal. Note that the drop is more or less the same height as the double top formation. These are essential points to get better profits.
We also have double bottoms.
Just like the double tops, double bottoms are also trend reversal patterns. However, they are the complete opposite. It is an opportunity to go long rather than short.
You will most likely see double bottoms after prolonged downtrends. If you look at a chart, you will see that a downtrend happens before the double bottoms appeared, and they are there because the price cannot go any further down.
Here is how you can tell that a reversal is about to come: the second bottom could not significantly break the low of the first bottom. It means that the selling pressure will end soon. The price will break the neckline and make a move up. You can also notice how the price jump is almost the same if it is not the same as the double bottom formation’s height.
How essential are these trend reversal formations in trading?
It will always be up to the trader to tell whether to go long or short. However, these trend reversal patterns say a lot about how the price will behave next. Some consider them as helpful tools in making trading decisions. Double tops are trend reversal patterns after an uptrend, while double bottoms are the same. The only difference is the fact that they form right after a downtrend. They were both made to help traders bring home better profits.
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