Tue. Oct 4th, 2022

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How to Trade Double Tops and Double Bottoms?

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A double top is a bearish reversal trading pattern. It is made up of two peaks above a support level, known as the neckline. The first peak will come immediately after a strong bullish trend, and it will retrace to the neckline. Once it hits this level, the momentum will shift to bullish once again to form the second peak.

A double bottom is a bullish reversal trading pattern. It is made up of two lows below a resistance level which – as with the double top pattern – is referred to as the neckline. The first low will come immediately after the bearish trend, but it will stop and move in a bullish retracement to the neckline, which forms the first low.

A double top or double bottom can tell traders about a possible trend reversal. However, in both cases the reversal is not confirmed until the prevailing trend has formed the second peak or second low before reversing in an opposing direction to the trend before the first peak or first low.

As with other technical indicators and chart patterns, the double top and double bottom patterns are by no means certain trend indicators. Because of this, traders should use the double top and double bottom chart patterns alongside others to verify the trend before opening an edge.

There are two ways to trade using the double top and double bottom patterns: you would open a short position on a double top, and a long position on a double bottom. Before you do either however, it is important to confirm the signal with other technical indicators such as the relative strength index (RSI) or the parabolic SAR – both of which are momentum indicators.

You can take a position on double tops and double bottoms with a CFD or spread betting account. These financial products are derivatives, meaning they enable you to go both long or short on an underlying market.

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