Today we are looking at 2 market patterns you have probably heard or come across before but may not have actioned on in your own trading. These 2 patterns alone could help you make better trading decisions as well as turn you into a profitable trader.
These 2 price patterns are very simple but very effective in the currency markets and have been for many years.
They are called the DOUBLE TOP and DOUBLE BOTTOM patterns.
Now, these patterns are very common in the FOREX markets, so it is key to learn when it’s best to use these patterns. Like most market patterns if you trade them from key support or resistance levels they will hold a higher probability of playing out.
As you can see from the image above we look for the double top pattern at the key resistance level. What this is showing us is that price is failing to break through the resistance and is likely to seek lower prices. The previous low of the pattern then becomes what we call the ‘neckline’ this, in theory, is the most recent area where the market found buyers. Once the market closes below the structure lows and neckline the pattern is complete. Typically, the neckline of the pattern will then act as resistance for a continuation move. This pattern often shows a change in trend.
Now to the reverse of the double top pattern, we have the double bottom pattern and we typically want to see these patterns at key support levels. In this pattern, price is showing that it does not want to push lower and that the market has found support. The previous structure highs will act as the neckline of the pattern which completes when price breaks and closes above it. Typically, we would see the neckline structure act as support for the price to move higher.
This is a good example of how powerful a double top pattern can be. We can see the market failing to close above the previous highs giving us the idea that the market wants to move lower. We then see the market break and close below the lows confirming a lower low. The market then retraces to the zone and moves lower.
This is a recent double bottom pattern on the 4hr timeframe as we can see the market tested the support twice and showed it did not want to push lower. The market then creates a higher high showing us the market wants to move highs. We then wait for the market to re-test the neckline support before looking for a long trade.
In conclusion, the price patterns can be a useful tool to add to your trading toolbox, open some charts and have a look around the key support and resistance levels you should see these market patterns often and how they perform.
If you want to see more analysis, please see the links below.