Double Top and Double Bottom Patterns

The double tops and double bottoms patterns are two related chart patterns that are some of the easiest trend reversal patterns to identify that appear on line, bar, candlestick charts, and Point-and-Figure charts.

Double Tops

Double Tops
The Double Tops Pattern

The double tops is a bearish trend reversal pattern that often marks the end of an uptrend and the start of a down trend. It consists of two consecutive peaks that reach a resistance level at more or less the same high value, with a valley separating the two peaks. The low of the valley is important for price projection purposes, but the shape that the peaks take is not important despite some traders talking about Adam and Eve tops. Volume is also of importance, with the volume on the second peak preferably lower than the volume on the first peak.

At times, the double top pattern can form a third top, creating a triple top pattern.

Entry Signal

The double tops pattern has two entry signals to sell short. The first is given when the price fails to break the previous resistance level at hte hish of hte first peak. However, this is a tentative entry as the price may rebound before reaching the support level between the two peaks and signal the continuation of the uptrend. The second entry signal is the more reliable signal. It is given when the previous support level created on the retracement from the first peak is violated. This should preferably occur on higher volume as a drop in volume may indicate a false break.

Price Projection

A price projection for the double tops formation can be calculated by taking the distance from the support level created on the retracement from the first peak to the top of the peak and subtracting it from the point at which the support level was subsequently broken. However, the price will usually attempt to retest the previous support level, which would now become a resistance level and may even violate this level before the down trend takes effect. Should the resistance level be broken on strong volume you should be cautious and perhaps exit the trade, looking to re-enter when the price breaks down below the resistance level.

Chart Example

The double tops pattern can be seen on the following 15-minute Euro/USD Forex chart. The Euro/USD reached a high of 1.30249 at 2:15 AM on May 14, 2013. It reached the same approximate level at 11:00 AM with a support level at around 1.29860. The price projection for this double top pattern is 1.29471 once the support level had been breached. This projection was reached at 12:45 PM.


Double Tops on the Euro/USD Chart
15 Minute EUR/USD chart with an Eve and Adam Double Top Pattern at 1.30249

Double Bottoms

The double bottom pattern is a bullish counterpart to the double tops. It often marks the end of a down trend and the possible start of a protracted up trend. It consists of two consecutive troughs or dips that bounce of a support level at more or less the same low value, with a peak separating the two dips. Similar to the valley in the double tops, the high that the interceding peak reaches in the double bottom is important for price projection purposes, and the shape that the two dips is of much importance. Volume is also of importance here, with the ideal pattern having a lower volume on the second dip than the volume on the first dip.

As is the case with the double tops, the double bottom pattern can also make a third bottom and evolve into a triple bottom pattern.

Entry Signal

The double tops pattern provides two entry signals to buy long: first, when the price fails to break the previous support level on the second dip; and second, when the resistance level formed at the peak between the two dips is broken. The latter is the more reliable signal and becomes even more reliable when the break is accompanied by an increase in volume.

Price Projection

A price projection for the double bottom formation can be calculated by taking the distance from the resistance level of the peak between the two dips to the low of the dips and adding it to the point at which the resistance level is broken. The price may come back to retest the previous resistance level, which would now become a support level and may even violate this level before the uptrend takes effect. Should the support level be broken on strong volume you should be cautious and perhaps exit the trade, looking to re-enter when the price penetrates up through this level.


Support and Resistance

Support and Resistance
Support and Resistance

Support and Resistance lines are often confused with trend lines but they are horizontal lines under the lows and above the highs respectively. They indicate where a previous rally met resistance and where a previous decline met support. These are two important levels in terms of trend identification since an uptrend will tend to break previous resistance levels above the market while a down trend will break the previous support levels below the market.

When the support line below the recent minor low in broken in an uptrend, it indicates that ...


Triple Tops

Triple Tops Pattern
Triple Tops

The Triple Tops pattern consists of three distinct peaks that reach the same approximate high separated by two dips. It is a short-term, bearish trend reversal pattern that indicates the potential end of an uptrend. This pattern gives an entry signal to sell short when the price moves below the lowest low for the dips that form between the three peaks.

The Triple Top pattern is only valid when the support level at the bottom of the dips is broken. This signals a short-term change in trend from bullish to bearish. However, a triple top may also be part of a larger pattern or an ...


Reversal Patterns

Trend Reversal Patterns
Double Top Pattern

Reversal patterns mark the turning point of an existing trend and are good indicators for taking profit or reversing your position. Generally, trend reversal patterns indicate that a support level in a downtrend or a resistance level in an uptrend will hold and that the pre-existing trend will start to reverse. These patterns allow you to enter early in the establishment of the new trend and are usually result in very profitable trades.

The common reversal patterns include the double tops and double bottoms, triple tops and triple bottoms, broadening tops and broadening bottoms, ...