Chart patterns in financial markets of great support. Traders use these to analyse the market trends, predict the price changes and make their decisions for a favourable trade.
Double tops & bottoms is one of the most used chart patterns. These are used to analyse the market trends and how traders can make their best trades online to make high market profits.
In the article, we’ll be discussing how to trade double tops & bottoms for successful trading experiences. So, let’s dig in.
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What is Double Tops & Bottoms?
Double tops & bottoms is a chart pattern. However, we can understand them individually for better trading.
A double top is the bearish reversal trading pattern. It forms on the chart pattern with two peaks above the support level, which is referred to as the neckline. The first peak of the pattern forms just after the strong bullish trend.
The peak retraces back to the neckline. As it hits the level, the momentum shifts to bullish again to form a second peak.
Traders can confirm the double top pattern when the trend retraces significantly after the first peak.
While, the double bottoms is the bullish reversal pattern. The pattern has two lows below the resistance level which is called the neckline. The first low is after the bearish trend and it stops and moves in bullish retracement to the neckline forming first low.
After that there is a rebound and enters a bearish trend until the momentum shifts to bullish, thus forming the second low.
Therefore, the two are known as double tops and bottoms.
How to trade double tops and bottoms?
There are two ways that traders can use to trade double tops and bottoms. Traders open a short position on the double top and a long position on the double bottom. However, before entering any position, traders should confirm the signal with other technical indicators.
Traders can take positions on double tops and bottoms using the CFD or spread betting account. As these are derivatives, traders can go long and short on the underlying market.
Double top traders can open short market positions after the second peak while double bottom traders can open long positions after the second low. Traders follow the given steps to trade in double tops & bottoms:
- Decide on whether you want to trade in CFDs or spread betting
- Research markets that you can trade
- Learn about identifying double tops and bottoms
- Practice trading using the demo account facility
- Create live trading account when you are ready to trade
Limitations of Double Tops & Bottoms
Double tops and bottoms is a good chart pattern. Traders can use it to trade in the market and make beneficial trades. However, these patterns have their limitations. Below we have analysed the limitations that traders may come across while using the chart pattern.
The pattern is highly effective when identified, but they can be extremely detrimental when interpreted incorrectly. Traders need to be careful, knowledgeable, and skilled to identify the pattern. Besides, they need to have patience before coming up with any conclusion.
For example, there is a difference between the double top that is successful and the one which fails. The real double top will be a bearish technical pattern. The pattern leads to extremely sharp decline in the asset.
Traders that are patient and can identify support levels for confirming double top can be great at studying the chart pattern. Just relying on the pattern of research, market analysis and study can lead to false reading and wrong decisions. Thus, loss of profits.
Conclusion
Double tops & bottoms is a good chart pattern to identify the market changes. Traders can use it to know what are the market trends and make their predictions and earn high profits.
The article helps traders with double tops and bottoms and how it could be used for profitable trading online. In addition, traders can also understand the limitations of the pattern for successful trading. It is easy to use if traders are well aware of it and how they can trade with it.
So, the article gives a complete overview of the chart pattern to make trading easy.
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